TOPIC: ACCOUNTING FOR LEASE

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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 equipment 4,500,000

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 periods 3.17

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 - unguaranteed 600,000

Annual rental payable in advance at the beginning of each year 900,000

Initial direct cost incurred by the lessor 250,000

Useful life and lease term 8years

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