Reference no: EM132784320
PROBLEM 1 - Annual rental payable in advance on December 31 of each year 70,000.
On December 31, 2020, Alba Co. leased a machinery with the following terms:
Estimated residual value at the end of the lease term 50,000
Residual value guaranteed by the lessee 30,000
Lease term 4 years
Useful life of the machinery 6 years
Interest rate implicit in the lease 7%
Included in the annual rental is an amount of P3,000 to cover reimbursement for insurance paid by the lessor. As per the lease contract, the machinery will revert back to the lessor at the end of the lease term.
Required -
1. What is the initial measurement of the right to usage of machinery on December 31, 2020?
2. How much is the interest expense for the year 2021?
3. What is the depreciation expense for the year 2021?
4. What is the lease liability on December 31, 2021?
5. Assuming the fair value of the machinery at the end of the lease term is P22,000, how much is the loss to be recorded by the lessee?
PROBLEM 2 - On January 1, 2020, Rio Company leased a building with the following provisions:
Annual rentals payable in advance at the beginning of each year, starting January 1, 2020 P250,000
Exercise price of the purchase option (reasonably certain to be exercised by the lessee) P200,000
Lease term 10 years
Economic life of the machine 15 years
Interest rate implicit in the lease 12%
Required -
1. What is the depreciation expense for the year 2020?
2. How much is the interest expense for the year 2020?
3. Assuming the lessee did not exercise the purchase option at the end of the lease term, how much loss should the lessee recognize?
PROBLEM 3 - At the beginning of year 2020, Romero Company leased an equipment with the following provisions:
Annual lease payments due at the end of each period P200,000
Purchase option that is not reasonably certain to be exercised 60,000
Initial direct cost paid 70,000
Lease incentives received 30,000
Lease bonus paid to lessor before commencement of lease 20,000
Present value of dismantling cost as required by contract discounted at 6% 40,000
Lease term 5 years
Useful life of building 8 years
Interest rate implicit in the lease 8%
Required -
1. What is the initial lease liability?
2. What is the initial cost of right to usage of equipment? 17. How much is the depreciation for 2020?
3. What is the lease liability on December 31, 2020?
PROBLEM 4 - On January 2, 2020, Agatha Co. entered into a 5-year lease of a floor of a building with the following terms:
Annual rental for the first two years payable at the end of each year P100,000
Annual rental for the next three years payable at the end of each year 150,000
Initial direct cost paid by lessee 50,000
Present value of restoration cost required by the lease contract 25,000
Useful life of the building 20 years
Interest rate implicit in the lease 8%
Discount rate for the restoration cost 5%
Required -
1. What is the lease liability on January 2, 2020?
2. What is the initial cost of the right of use asset?
3. What is the depreciation expense for 2020?
4. What is the balance of the lease liability on December 31, 2022?
PROBLEM 5 - Denver Corp. entered into a lease of building on January 1, 2020 with the following information:
Annual rental payable at the end of each year P120,000
Lease term 5 years
Useful life of building 20 years
Interest rate implicit in the lease 9%
The lease contained an option for the lessee to extend the lease for a further 5 years. At the commencement date, the exercise of the extension option is not reasonably certain.
On January 1, 2023, the lessee decided to extend the lease for a further 5 years.
New annual rental payable at the end of each year P160,000
New implicit interest rate 12%
Required -
1. What is the new lease liability on January 1, 2023?
2. What is the carrying amount of right to usage of building on January 1, 2023?
3. What is the depreciation expense for 2023?
PROBLEM 6 - As an inducement to enter a lease, Sergio Co., lessor, grants Tokyo Co., lessee, nine months of free rent under a five year operating lease. The lease is effective starting April 1, 2020 and provides for monthly rental of P20,000 over the five year lease term starting January 1, 2021.
Required -
1. What amount of lease revenue shall be recognized in 2020?
2. What amount should be reported as lease receivable on December 31, 2021?
PROBLEM 7 - Helsinki Co., lessor, leased a machinery under an operating lease. The lease term is 5 years and the lease payments are made in advance on January 1 of each year as shown in the following schedule:
January 1, 2020 P200,000
January 1, 2021 200,000
January 1, 2022 280,000
January 1, 2023 340,000
January 1, 2024 380,000
Required -
1. What amount should be reported as lease income for 2020?
2. What amount should be reported as lease receivable on December 31, 2021?
PROBLEM 8 - Stockholm Corporation leased an equipment to Roman Co. on March 1, 2020. The lease expires on February 28, 2025. The annual rental is P900,000 payable every February 28 starting February 28, 2021. Additionally, Roman Co. paid P500,000 to Stockholm Co. as lease bonus and P250,000 as security deposit to be refunded upon expiration of the lease.
Required -
1. What amount of lease revenue should be reported for 2020?
2. What amount of lease revenue should be reported for 2021?
PROBLEM 9 - Lisbon Company purchased a tractor on January 1, 2018 at a cost of P800,000 for the purpose of leasing it.
The tractor is estimated to have a useful life of 5 years with the residual value of P50,000. Depreciation is on a straight-line basis.
On April 1, 2018, Lisbon entered into a lease contract for the lease of the tractor for a term of two years up to March 31, 2020.
The lessee prepaid P300,000 as the lease fee for the period April 1, 2018 to March 31, 2019.
Lisbon paid P60,000 commission associated with negotiating the lease, P7,500 minor repairs and P5,000 transportation of the tractor to the lessee during the current year.
Required -
1. How much is the gross lease revenue for 2018?
2. How much is the depreciation expense to be recognized in 2018?
3. How much is the net lease revenue should be reported for the current year?
4. What is the carrying amount of the leased asset in the books of the lessor on December 31, 2018?