On~cathitenensive Review i Financial Accounting IIl- LEASES ake Reine 1e Cplokenc i} Het 1. For a finance lease, the amount recorded initially by the lessee as liability should normally y/-10, keen ' 4 @xceed the total of the minimum lease payments { || b. exceed the Present Value of the minimum lease payments at the begi rij ©. @qual the total of the minimum lease payments I ig of the lease. 11) ~d: equal the present value of the minimum lease payments at the beginning ofthe lease. 2 The primary difference between a diect nance lease and a manufacturers or desler’s lease £jF isthe Be ‘8. manner in which rental receipts are recorded as rental revenue, b, amount of the depreciation recorded each year by the lessor. ~ recognition of the manufacturer or dealer's profit at the commencement of the lease. 4. allocation of initia direct costs by the lessor to periods benefited by the lease arrangements. Wane 3. Which of the following characterizes an operating lease? a, The lessee records depreciation expense and interest expense Sv. The lessor records depreciation expense and interest revenue, The lessor records depreciation expense and rent revenue 4. The lessee records an asset and a lability “4: tnalease that is recorded as a manufacturer's lease or dealers loase by the lessor, gross, “a. should be recognized in full as revenue at the lease’s commencement b. should be recognized over the period ofthe lease using the straightine method © should be recognized over the period of the lease using the interest method | does not arise. 5. When measuring the discounted amount of future rentals to be capitalized as part of the Purchase, identifiable payments to cover taxes, insurance and maintenance should be a. included with future rentals to be capitalized lp excaittay tes Ob. excluded from future rentals to be captained : Fcahllized but at a different discount rate and fora relevant period thal tends to be diferent from the future rental payments. d. capitalized but at different discount rate and recorded in a different account from future rentals. 6. Mac Company leased a piece of land. The lease does not transfer ownership of the land to Mac but the present value of the minimum lease payments is equal to 90% of the fair market value of the land. Mac also leased a piece of equipment. The lease for the equipment does not, Contain a purchase option but the term of the Lease is equal to 75% of the economic life of the ' leased equipment, How should Mac classify these leases? Lease of Land Lease Equipment a finance lease Operating lease “Sb. finance lease finance lease cC operating lease finance lease d. "operating lease operating lease4 i! J con: Ps 7..{nitial ditect costs incurred . included in the initial measurement of F°) Income over the lease term, i}. P-Pecognized as an expense, usually as part of the cost of sales, 1” @. recorded as deferrers costs and ar | d. ignored b. based on the lease term. ©. based on the shorter of the lease term or the useful life of the asset 4. Rot recognized, by the lessor in connection with specific leasing activities as in 19 and securing leasing arrangements, in a direct finance lease are the finance lease receivable and reduce the amount of Mortized over the useful life of the assot 8. Ina finance lease by the lessee, the leased asset is depreciated on a systematic basis sistent with the depreciation policy of the lessee. If there is reasonable certainty that the ’ssee will obtain ownership by the end of the lease term, depreciation is, based on the useful life of the leased asset 8. James Company leased a new machine to Lake Co. on January 1, 2009: The lease expires on January 1, 2014. The annual rental is P900,000. Additionally, on January 1, 2008, Lake paid 500,000 to James as a lease bonius and P250,000 as a security deposit to be tefunded upon expiration of the lease. In James’ 2009 income statenient, the amount of rental revenue should be 00,000 21400000 sept S ,009 b. 1250 000 rh \g. 1000 000 d. 900 000 yeareconomic life. The lease bargain purchase ‘option. The 41,2010. Incremental borrowin In its December 31, 2009, income state! 10. Peter Company leased office premises to Fox, Inc. for a fve-yea) term beginning January 2, 2009. Under the terms of the ‘operating lease, rent for the first year is P80,000 and rent for years, 2 through 5 is P125,000 per annum. However, es an inducement to enter the lease, Peter granted Fox the first six months of the lease rent-free. ment, what amount should Peter report as rental income? $100 a a, P120,000 2 b+ b. P116,000 ye —~e. P108,000 your 9. 80,000 ie {a5 [10 (5 = 15 11. On July 1, 2009, Extreme Company signed a five-year leas? for an equipment having ai2 agreement provides for netthér a transfer of fille to Extreme nor a agreement calls for annual payments Pano starting July 9 rate is 14% which approximates the ralz-impliet in the lease. Fair: market value of the equipment at the inception of the lease is P'1,480,000. Present value factors are a8 follows: PV of an ordinary annuity at 14% for five periods. 3.433 PV of an annuity due at 14% for five periods 3.91410) How much is the interest expense for the year ended December 31,2009? 1 a. P115,248 7 b.P65,755 P 57,674 Po . ill. 12.Wnatis the amount of liability relating fo the lease agreement that Extreme would report in |. its December 34, 2009 statement of financial Position a. P939,360 b.65,755 57,674 : “aPo 13. On December 31, 2009, Simon Company leased a new machine from Junction Company with the following information : Lease term ~ 6 years; Useful lfe of machine ~ 6 years; Anpwal_rental payable every December 31 __P500,000;Simon's incremental borrowing rate '5%) interest rate in lease (known syn Present value of anunuity of 1 in advance for 6 periods at 12% 4.61; at 15 % 4.35 machine reverts {o Junction at the termination of the lease. The cost of the machine on Junction’s accounting records is P3,755,000 ‘What is the capitalized cost of the asset? 8. P3,755,000 el P2306 00 SProuy ALG| BLN 59476 000 Po 14. Use the same information given in number 20. What is the least liabiliy balance at : | December 31, 2010 peas AP 1,805 000 method of TNS > ie Il b.P 1,851 600 i (908 PD) a P 1,521,600 LS we ja P 1.-621,600 VS ory mM : Cop, we [15° ooo 16. Use the same information given in number 20. Assuming that Simon uses straight-ine method of depreciation, how much is the depreciation expense for year ended December 31, __ 20107 A. P384, 167 B. P362, 500 C. P288, 125 D.P271, 875 i 42. On December 31, 2008,Lazarys Corporation leased equipment under a fnance lease jio Annual lease nts of e200 are due December 3 Ter [Q years. Tr caupments 4904 useful life is 0 re and tReinterést rate In the lease & 10%. 3 finance lease obligation was recorded mber 31, 2009, at P1, 350, 000, and the first lease payment was made on that date. : ‘What amount should Lazarus include in current liabilities for this finance lease in ts December ‘31,2009, statement of financial position?A.P65, 000 - P 85, 000 C.P 115, 000 DP 200, 000 17. On August 1, 2009 , Gabriel Cos leased a machine to Way Company fira si =] Period requiring payments of P 169,000 aie beginning of each year. The machine cost 480, po ich is the fair value at least date, anct has a useful life of sight yeas with no i valug. Gabriel's implicit interest rate is10% 4nd present value factors are as follows: PV of an annuity due of P1 at 10% for 6 periods 4.800 ie y per PV of an annuity due of Pt at 10% for 8 periods: 5.868 Gabriels appropriately recorded the least as a direct financing lease At the least inception of the least , tndgross Bace receivables account balance should be A,)P600, 000 a B. P586, 800 C. P480, 000 D.P479, 000 18. Use the same information given in number 24. How much is the interest revenue relating to the least for the year ended December 31, 20107 S00 AP60,000 Coop ea aor” My B.P48, 000 x 1 0) (5108 AGO 7O.P2,000 fey alee sow __hastibes > D. P15, 000 clive CAS BO ig po ae 408 003” 20. lace Company leases computer equipment to costiiers undef ect financing feade, The equipment has ne{residual v value at the epdtaf the lease and the leases do not contain bargain Purchase options. Giade wishes to earn\% interest on a five-year teade Of equipment with a fair valu@ Of P323, 400. The present value of Sr annuity due of Pt at 8% for 5 years is #304, 4312128 What is the total amount of interest revenue that Glade will earn over the life of the | = YAP 51,600 B.P 75,000 7 30> We. 6284 ©. P129, 000 . ($3 \) D. P139, 000 nal 21. On duly 1, 2008, PC Options sold equipment to PC Madness and simultaneously leased it back for 12 years. Pertinent information at this date is as follows: Sales price - P4, 800, 000 Carying amount P3,600, 00 Economic life = 15 years (nad) At July 1, 2008, How much should PC options report as deferred gain from the sale of the uipment?- P1, 200, 000 : B.P1, 120, 000 fagh 400, C. P41, 100,000 DPo 22. Use the same information given in number 28, How much should PC Options report es + revenue on sale-leasebac {quipment for the year ended December 31, 20097 pot, C Own,