Problem 6

GG Na Inc. Uses leases as a method of selling its products. In 2019 the Company completed construction of its passenger ferry. On January 1, 2019, the ferry was leased to the Super Ferry Line on a contract specifying that ownership of the ferry will transfer to the lessee at the end of the lease period. Annual lease payments do not include executory costs.

Other terms of the agreement are as follows:

Original cost of the ferry

8,000,000

Fair value of ferry at lease date

12,555,000

Lease payments in advance

1,500,000

Estimated residual value

2,000,000

Implicit Interest Rate

12%

Date of first lease payment

1-Jan-19

Lease term

20 years

Present value of an annuity due of P1 at 10% for 20 periods

8.37

Present value of 1 at 12 % for 20 periods

0.1

Q1. What is the total financial revenue over the lease term?

A. 17,445,000B. 19,245,000C. 19,445,000D. 22,000,000

Q2. What is the gross profit on sale for 2019?

A. 6,555,000B. 4,555,000C. 4,755,000D. 4,355,000

Q3. What is the interest income for 2019?

A. 1,506,600B. 1,524,600C. 1,326,600D. 1,350,600

Problem 7

On December 31,2020, an entity leased two automobiles for executive use. The lease required the entity to make five annual payment of P1,500,000 beginning December 31, 20202. At the end of the lease term, December 21, 2025, the entity had a residual value guarantee of the automobile at P1,000,000. The interest rate implicit in the lease is 10% and present value factors at 10% for periods are 4.17 for an annuity due, 3.79 for an ordinary annuity and 0.62 for present value of 1.

Q1.What is the lease liability on December 31,2021?

A.4,412,500

B.5,375,000

C.6,062,500

D.4.805,000

Q2. What is the current position of the lease liability on December 31, 2021?

A.1,500,000

B.1,058,250

C.962,500

D.750,000

Q3. What is the interest expense for 2021?

A.480,500

B.537,500

C.441,250

D.606,250

Problem 8

At the beginning of current year, an entity sold an equipment with remaining life of 10 years and immediately leased it back for 4 years at the prevailing market rental.

Sale price at fair value6,000,000

Carrying amount of equipment4,500,000

Annual rental payable at the end of each year800,000

Implicit interest rate10%

Present value of an ordinary annuity of 1 at 10% for four periods3.17

Q1. What is the initial lease liability?

A.2,536,000

B.3,200,000

C.3,000,000

D.0

Q2. What is the cost of right of use asset?

A.1,902,000

B.2,598,000

C.2,536,000

D.0

Q3. What is the gain on right transferred?

A.866,000

B.634,000

C.750,000

D.0

Q4. What is the annual depreciation of the right use asset?

A.475,500

B.190,200

C.634,000

D.253,600

Problem 9

An entity is in the business of leasing new sophisticated equipment under a direct financing lease. The lessor expects a 12% return on net investment. At the end of the lease term, the equipment will revert to the lessor. At the beginning of current year, an equipment is leased to a lessee with the following information:

Cost of equipment to the lessor5,000,000

Residual value - unguaranteed600,000

Annual rental payable in advance at the beginning of each year900,000

Initial direct cost incurred by the lessor250,000

Useful life and lease term8years

Implicit interest rate12%

Q1. What is the gross investment in the lease?

A.7,200,000

B.7,800,000

C.5,000,000

D.5,250,000

Q2. What is the net investment in the lease?

A.5,000,000

B.5,250,000

C.4,400,000

D.4,650,000

Q3. What is the total unearned interest income?

A.2,550,000

B.1,950,000

C.3,150,000

D.1,500,000

Q4. What amount of interest income should be recognized for the current year?

A.594,000

B.522,000

C.630,000

D.450,000

Problem 10

An entity acquired an asset costing P3,165,000. The asset is leased to another entity for 5 years. The five annual lease payment are due at the end of each year. The unguaranteed residual value of the asset at the end of the lease term is P500,000. The asset will revert to the lessor at the end of the lease term. The lessor's implicit interest rate is 12%. The PV of 1 at 12% for 5 periods is 57 and the PV of an ordinary annuity of 1 at 12% for 5 periods is 3.60. What is the annual rental payment?

A.879,166

B.740,278

C.800,000

D.500,000

Problem 6 GG Na Inc. Uses leases as a method of selling its products. In 2019 the Company completed construction of its passenger ferry. On January 1, 2019, the ferry was leased to the Super Ferry Line on a contract specifying that ownership of the ferry will transfer to the lessee at the end of the lease period. Annual lease payments do not include executory costs. Other terms of the agreement are as follows: Original cost of the 8,00 ferry 0,00 0 Fair value of ferry at 12,5 lease date 55,0 00 Lease payments in 1,50 advance 0,00 0 Estimated residual 2,00 value 0,00 0 Implicit Interest 12% Rate Date of first lease 1payment Jan19 Lease term 20 year s Present value of an 8.37 annuity due of P1 at 10% for 20 periods Present value of 1 at 0.1 12 % for 20 periods Q1. What is the total financial revenue over the lease term? A. 17,445,000 D. 22,000,000 B. 19,245,000 C. 19,445,000 Q2. What is the gross profit on sale for 2019? A. 6,555,000 4,355,000 B. 4,555,000 C. 4,755,000 D. C. 1,326,600 D. Q3. What is the interest income for 2019? A. 1,506,600 1,350,600 Problem 7 B. 1,524,600 On December 31,2020, an entity leased two automobiles for executive use. The lease required the entity to make five annual payment of P1,500,000 beginning December 31, 20202. At the end of the lease term, December 21, 2025, the entity had a residual value guarantee of the automobile at P1,000,000. The interest rate implicit in the lease is 10% and present value factors at 10% for periods are 4.17 for an annuity due, 3.79 for an ordinary annuity and 0.62 for present value of 1. Q1.What is the lease liability on December 31,2021? A. B. C. D. 4,412,500 5,375,000 6,062,500 4.805,000 Q2. What is the current position of the lease liability on December 31, 2021? A. 1,500,000 B. 1,058,250 C. 962,500 D. 750,000 Q3. What is the interest expense for 2021? A. B. C. D. 480,500 537,500 441,250 606,250 Problem 8 At the beginning of current year, an entity sold an equipment with remaining life of 10 years and immediately leased it back for 4 years at the prevailing market rental. Sale price at fair value 6,000,000 Carrying amount of equipment 4,500,000 Annual rental payable at the end of each year Implicit interest rate 10% Present value of an ordinary annuity of 1 at 10% for four periods Q1. What is the initial lease liability? A. B. C. D. 2,536,000 3,200,000 3,000,000 0 Q2. What is the cost of right of use asset? A. 1,902,000 B. 2,598,000 C. 2,536,000 800,000 3.17 D. 0 Q3. What is the gain on right transferred? A. 866,000 B. 634,000 C. 750,000 D. 0 Q4. What is the annual depreciation of the right use asset? A. B. C. D. 475,500 190,200 634,000 253,600 Problem 9 An entity is in the business of leasing new sophisticated equipment under a direct financing lease. The lessor expects a 12% return on net investment. At the end of the lease term, the equipment will revert to the lessor. At the beginning of current year, an equipment is leased to a lessee with the following information: Cost of equipment to the lessor Residual value - unguaranteed Annual rental payable in advance at the beginning of each year Initial direct cost incurred by the lessor Useful life and lease term Implicit interest rate Q1. What is the gross investment in the lease? A. B. C. D. 7,200,000 7,800,000 5,000,000 5,250,000 Q2. What is the net investment in the lease? A. B. C. D. 5,000,000 5,250,000 4,400,000 4,650,000 Q3. What is the total unearned interest income? A. B. C. D. 2,550,000 1,950,000 3,150,000 1,500,000 5,000,000 600,000 900,000 250,000 8years 12% Q4. What amount of interest income should be recognized for the current year? A. B. C. D. 594,000 522,000 630,000 450,000 Problem 10 An entity acquired an asset costing P3,165,000. The asset is leased to another entity for 5 years. The five annual lease payment are due at the end of each year. The unguaranteed residual value of the asset at the end of the lease term is P500,000. The asset will revert to the lessor at the end of the lease term. The lessor's implicit interest rate is 12%. The PV of 1 at 12% for 5 periods is 57 and the PV of an ordinary annuity of 1 at 12% for 5 periods is 3.60. What is the annual rental payment? A. B. C. D. 879,166 740,278 800,000 500,000