On July 1, 2017, Joseph leased his vacant lot for a period to Ivan. The lease will
Question:
On July 1, 2017, Joseph leased his vacant lot for a period to Ivan. The lease will expire on December 31, 2029 at an annual rate of ₱2,400,000. Ivan agreed to pay the following on July 1, 2017:
- ₱1,200,000 representing rental payment for 2017
- ₱2,400,000 representing rental payment for 2018
- The succeeding annual rent will be paid starting 2019
- Security deposit of 2,400,000
Ivan also agreed to pay the annual property tax of ₱30,000 starting 2017.
The lease contract provides, among others that the lessee will construct a 5-storey building for parking purposes at a cost of ₱36,000,000. Ownership of the building shall belong to the lessor upon the expiration or termination of the lease contract.
The building was completed on December 31, 2019 with an estimated useful life of 15 years. Using the spread-out method, Joseph shall report total income from the lease for 2017 at:
- a. ₱1,230,000.
- b. ₱3,600,000.
- c. ₱3,630,000.
- d. ₱2,640,000.
Financial Reporting and Analysis
ISBN: 978-1259722653
7th edition
Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer