CHAPTER 4 LEASES PROBLEMS 4-1.

(Hope Manufacturing Company and Charity Company) (a) Lessors

Books (Hope Manufacturing Co.) 2013 Jan. 1 1 1 Dec. 31 Machinery for lease Cash Cash Rent revenue
Unearned rent revenue 2 M/5 = 400,000 2 M x 30% = 600,000 Machinery for lease Cash 2,200,000
2,200,000 600,000 400,000 200,000 60,000 60,000 Depreciation expense Accumulated depreciation
Machinery for lease (2.2 M 200,000)/10 200,000 60,000 / 5 years 12,000 Total 212,000 212,000 Cash
Rent revenue 2,000,000 x 20% 400,000 Depreciation expense Accumulated depreciation Machinery for lease
212,000 200,000 12,000 2014 Jan. 1 Dec. 31 400,000 200,000 12,000 Lessees Books (Charity Co.) 2013
Jan. 1 Rent expense Prepaid rent Cash 400,000 200,000 Rent expense Cash 400,000 600,000 2014 Jan. 1
400,00 (b) Statement of Comprehensive Income: (In profit or loss section) Rent revenue Depreciation
expense Rent expense Statement of Financial Position Machine for lease, net of accum. depreciation
Unearned rent revenue Prepaid rent Hope Charity 400,000 212,000 400,000 2,048,000 200,000 200,000
Chapter 4 Leases 4-2. (Blessed Realty) a. (7,500 x 4) + (10,000 x 3) + (12,000 x 3) + (15,000 x 2) Total lease
period Monthly rent expense No. of mos. from Sept. 1 Dec. 31, 2013 Rent expense for 2013 b. 4-3. Rent
expense for 2013 Rent payments made during 2013 Rent payable at December 31, 2013 42,000 30,000
12,000 (Faith Company) a. Monthly rental payment No. of payments (60-6 mos free) Total payments Rent
expense for 2013 (540,000 x 4/60) or Monthly rental Less lease bonus (60,000/60 mos) Rent expense per
month Rent expense for 2013 (9,000 x 4) 10,000 x 54 540,000 36,000 10,000 (1,000) 9,000 36,000 Rent
expense for 2014 (9,000 x 12) (b) 126,000 12 mos. 10,500 x4 42,000 108,000 Faith Company 2013 Dec.
31 Rent expense Rent payable 36,000 36,000 9,000 x 4 = 36,000 2014 Mar. 1 - Dec. 31 Dec. 1 monthly
entry Rent expense Cash 10,000 10,000 Rent expense Rent payable 8,000 8,000 Rent expense for 2013:
540,000 x 12/60 108,000 Payments in 2013 100,000 Increase in rent payable 8,000 Love Corporation 2013
Dec. 31 Rent receivable Rent revenue 36,000 36,000 2014 Mar. 1 - Dec. 31 Dec. 1 monthly entry Cash Rent
revenue 10,000 10,000 Rent receivable Rent revenue 8,000 8,000 43
Chapter 4 Leases 4-4. (Way Company) a. Fixed annual rental Additional rent 5% x (6M-5M) Amortization of
lease bonus (125,000/5 years) Rent expense for 2013 b. 4-5. Prepaid rent expense (125,000 25,000)
Security deposit (discounted for 4 years at 10%) 150,000 x 0.6830 100,000 102,450 (Truth Corporation) a.
Rent revenue (920,000 x 9/12) Depreciation expense 3,500,000/6 = 583,333; 583,333 x 9/12 Maintenance
and other related costs Income before income tax b. 4-6. 960,000 50,000 25,000 1,035,000 690,000
(437,500) (50,000) 202,500 Rent expense (920,000 x 9/12) 690,000 (Provident Company) Lessors Books
2013 July 1 Oct. 1 1 Nov. 1 Dec. 1 31 31 Equipment for lease Cash 1,500,000 1,500,000 Cash Rent revenue
54,000 Cash Rent revenue 30,000 Cash Rent revenue 30,000 Cash Rent revenue 30,000 Rent revenue
Unearned rent revenue 54,000 x 33/36 = 49,500 49,500 Depreciation expense Accumulated depreciation
(1,500,000 / 10) x 6/12 75,000 54,000 30,000 30,000 30,000 49,500 75,000 Lessees Books 2013 Oct. 1 1
Nov. 1 Rent expense Cash 54,000 Rent expense Cash 30,000 Rent expense Cash 30,000 54,000 30,000
30,000 44
Chapter 4 Leases Dec. 1 31 4-7. Rent expense Cash 30,000 Prepaid rent Rent expense 49,500 30,000
49,500 (Generous, Inc.) 260,000 x 4.2397 200,000 x 0.6499 Total capitalized cost (a) 1,102,322 129,980
1,232,302 Amortization Table Total Annual Interest Date Payment Expense 01/01/13 01/01/13 260,000
01/01/14 260,000 87,507 01/01/15 260,000 71,983 01/01/16 260,000 55,061 01/01/17 260,000 36,617
12/31/17 200,000 16,530* *Adjusted; difference is due to rounding off. Reduction in Principal 260,000
172,493 188,017 204,939 223,383 183,470 Lease Obligation 1,232,302 972,302 799,809 611,792 406,853
183,470 - (b) 2013 Jan. 1 1 Dec. 31 31 Leased automobile Finance lease obligation Finance lease obligation
Cash Interest expense Interest Payable 1,232,302 1,232,302 260,000 260,000 87,507 87,507 Depreciation
expense Accumulated depreciation (1,232,302-200,000)/5 206,460 Finance lease obligation Interest payable
Cash 172,493 87,507 206,460 2014 Jan. 1 Dec. 31 31 Interest expense Interest payable 260,000 71,983
71,983 Depreciation expense Accumulated depreciation 206,460 206,460 (c) Dec. 31 Accumulated
depreciation Interest expense Finance lease obligation Leased automobile *adjusted; balancing figure
1,032,300 16,532* 183,470 1,232,302 45
Chapter 4 Leases (d) Dec. 31 4-8. Loss on finance lease Accumulated depreciation Interest expense
Finance lease obligation Leased automobile Cash 50,000 1,032,300 16,532 183,470 1,232,302 50,000
(Diana Corporation) (a) 86,680 x 4.1699 (b) = 361,447 Amortization Table Total Annual Payment Interest
Date Expense 01/01/13 01/01/13 86,680 01/01/14 86,680 27,477 01/01/15 86,680 21,556 01/01/16
86,680 15,044 01/01/17 86,680 7,876* *Adjusted; difference is due to rounding off. Reduction in Principal

86,680 59,203 65,124 71,636 78,804 Lease Obligation 361,447 274,767 215,564 150,440 78,804 - (c) 2013
Jan. 1 1 Dec. 31 31 Leased machine Finance lease obligation 361,447 361,447 Finance Lease Obligation
Cash 86,680 Interest expense Interest payable 27,477 Depreciation expense Accumulated depreciation
361,447/5 years 72,289 Finance lease obligation Interest payable Cash 59,203 27,477 Interest expense
Interest payable 21,556 Depreciation expense Accumulated depreciation 72,289 86,680 27,477 72,289 2014
Jan. 1 Dec. 31 31 86,680 21,556 (d) Statement of Financial Position Property, plant and equipment Leased
machine Accumulated depreciation Current liabilities: Interest payable Finance lease obligation 46 72,289
2013 2014 361,447 72,289 361,447 144,578 27,477 59,203 21,556 65,124
Chapter 4 Leases Noncurrent liabilities: Finance lease obligation Income Statement Interest expense
Depreciation expense 4-9. 215,564 150,440 27,477 72,289 21,556 72,289 (Riza, Inc.) (a)
1,011,840/135,000 = 7.4951 PV of an annuity due for 12 periods From Table VI across 12 periods, 7.4951
is under 10% interest rate. (b) Date 12/31/13 12/31/13 12/31/14 12/31/15 (c) 135,000 135,000 135,000
Interest Expense 87,684 82,952 Reduction in Principal 135,000 47,316 52,048 (1,011,840 40,000) / 15
years (d) 12/31/13 12/31/14 (e) Total Annual Payment P64,789 Leased equipment Finance lease obligation
1,011,840 1,011,840 Finance lease obligation Cash 135,000 Finance lease obligation Interest expense Cash
47,316 87,684 Depreciation expense Accumulated depreciation (1,011,840 40,000) / 15 64,789 135,000
135,000 64,789 Lease obligation as of December 31, 2013: Current portion Noncurrent portion 4-10.
(Shirley Corporation) (a) 150,000 x 4.0373 240,000 x 0.5674 Total capitalized cost (b) Total Annual Date
Payment 01/01/13 01/01/13 150,000 01/01/14 150,000 01/01/15 150,000 01/01/16 150,000 01/01/17
150,000 12/31/17 240,000 Lease Obligation 1,011,840 876,840 829,524 777,476 P 47,316 829,524
605,595 136,176 741,771 Interest Expense 71,013 61,534 50,918 39,028 25,736* *Adjusted; difference is
due to rounding off. 47 Reduction in Principal 150,000 78,987 88,466 99,082 110,972 214,264 Lease
Obligation 741,771 591,771 512,784 424,318 325,236 214,264
Chapter 4 Leases (c) 741,771 / 15 years P49,451 (d) 2013 Jan. 1 1 Dec. 31 31 Leased machinery Finance
lease obligation 741,771 Finance lease obligation Cash 150,000 741,771 150,000 Interest expense Interest
payable 71,013 Depreciation expense Accumulated depreciation 49,451 Finance lease obligation Interest
payable Cash 78,987 71,013 Interest expense Interest payable 61,534 Depreciation expense Accumulated
depreciation 49,451 71,013 49,451 2014 Jan. 1 Dec. 31 31 (e) Dec. 31 (f) Dec. 31 150,000 61,534 49,451
Interest expense Finance lease obligation Accumulated depreciation Machinery Leased machinery Cash
25,736 214,264 247,255 494,516 Interest expense Finance lease obligation Accumulated depreciation Loss
on finance lease Leased machinery 25,736 214,264 247,255 254,516 741,771 240,000 741,771 4-11. (Sam
Company) (a) (b) Present value of minimum lease payments 700,000 x 6.3282 P4,429,740 Annual
depreciation (4,429,740/10) P 442,974 48
Chapter 4 Leases (c) 2013 July 1 1 Dec. 31 31 31 Building Finance lease obligation 4,429,740 4,429,740
Taxes and insurance expense Finance lease obligation Cash 50,000 700,000 Interest expense Interest
payable 447,569 x 6/12 223,784 Depreciation expense-Building Accum. Depreciation-Building 221,487
Prepaid taxes and insurance Taxes and insurance expense 25,000 750,000 223,784 221,487 25,000 2014
July 1 Dec. 31 31 Taxes and insurance expense Interest payable Interest expense Finance lease obligation
Cash 50,000 223,784 223,785 252,431 Interest expense Interest payable 417,277 x 6/12 208,639
Depreciation expense Accum. Depreciation-building 442,974 Date July 1, 2013 July 1, 2013 July 1, 2014
July 1, 2015 750,000 208,639 442,974 Amortization Table Periodic Applied to Payment Interest Principal
P700,000 700,000 700,000 P447,569 417,277 P700,000 252,431 282,723 Balance of Principal P4,429,740
3,729,740 3,477,309 3,194,586 4-12. (Joy Company) a. 2013 Aug. 1 1 1 Finance lease receivable
Equipment for lease Unearned interest revenue 605,000 480,000 125,000 Unearned interest revenue Cash
1,900 Cash Finance lease receivable 100,000 49 1,900 100,000
Chapter 4 Leases Dec. 31 Unearned interest revenue Interest revenue 38,190 x 5/12 15,912 15,912
Partial Amortization Table Date 08/01/13 08/01/13 08/01/14 (b) Periodic Payment 100,000 100,000
Interest 38,190 Reduction in Principal 100,000 61,810 As of December 31, 2013: Total Current Finance
lease receivable P505,000 P100,000 Unearned interest revenue 107,188 22,278 P397,812 P 77,722 Current
portion: Principal due in 2014 Accrued interest, 12/31/13 (38,190 x 5/12) 4-13. Balance of Principal
481,900 381,900 320,090 Non-current P405,000 84,910 P320,090 P 61,810 15,912 (Jackie Chan and
Chris Tucker) Annual Lease Payment: Fair value of asset PV of BPO = 40,000 x .6209 PV of periodic payment
PV factor (Annuity due for 5 years at 10%) Periodic payment Date Jan. 1, 2013 Jan. 1, 2013 Jan. 1, 2014

Jan. 1, 2015 P600,000 24,836 P575,164 4.1699 P137,932 Periodic Payment Interest Reduction in
Principal P137,932 137,932 137,932 P46,207 37,034 P137,932 91,725 100,898 Balance of Principal
P600,000 462,068 370,343 269,445 Depreciable cost = P600,000 P20,000 = P580,000 2013 Depreciation
= P580,000 x 6/21 = P165,714 2014 Depreciation = P580,000 x 5/21 = 138,095 (a) Books of Chris Tucker
2013 Jan. 1 Leased equipment Finance lease obligation 1 Finance lease obligation Cash 600,000 600,000
137,932 137,932 Dec 31 Interest expense Interest payable 46,207 46,207 31 Depreciation expense Leased
equipment Accum. depr. Leased equipment 50 165,714 165,714
Chapter 4 Leases 2014 Jan. 1 Finance lease obligation Interest payable Cash 91,725 46,207 Dec 31
Interest expense Interest payable 37,034 137,932 37,034 Depreciation expense Accum. depr. Leased
equipment 138,095 138,095 (b) Books of Jackie Chan 2013 Jan. 1 Finance lease receivable Equipment for
lease Unearned interest revenue Cash 729,660 600,000 129,660 137,932 Finance lease receivable Dec 31
Unearned interest revenue Interest revenue 137,932 46,207 46,207 2014 Jan. 1 Cash 137,932 Finance
lease receivable Dec 31 Unearned interest revenue Interest revenue 137,932 37,034 37,034 4-14. (Ben Ten
and Ironman) (a) Direct finance lease (The cash price equals the carrying value of the asset; hence, there is
no gross profit). (b) The rate is approximately 8%. The PV factor is P539,730/80,000 = 6.7466; in line 9
(which is 8 annual payments of P80,000 + 1 payment for guaranteed residual value of same amount), the
corresponding interest rate is 8%. (c) Partial amortization table Date April 1, 2013 April 1, 2013 April 1,
2014 April 1, 2015 Periodic Payment Interest Reduction in Principal 80,000 80,000 80,000 36,778 33,321
80,000 43,222 46,679 51 Balance of Principal P539,730 459,730 416,508 369,829
Chapter 4 Leases Ironman 2013 Apr. 1 1 Dec. 31 31 Equipment Finance lease obligation 539,730 539,730
Finance lease obligation Cash 80,000 Interest expense Interest payable 36,778 x 9/12 27,584 Depreciation
expense Accumulated depreciation (539,730-80,000)/8 = 57,466 57,466 x 9/12 = 43,100 43,100 Interest
expense (36,778-27,584) Interest payable Finance lease obligation Cash 9,194 27,584 43,222 Interest
expense Interest payable 33,321 x 9/12 24,991 Depreciation expense Accumulated depreciation (539,73080,000)/8 = 57,466 57,466 80,000 27,584 43,100 2014 Apr. 1 Dec. 31 31 80,000 24,991 57,466 (d) Books
of Ben Ten 2013 Apr. 1 1 Dec. 31 Finance lease receivable Unearned interest revenue Equipment for lease
80,000x 8 = 640,000; 640,000 + 80,000 GRV = 720,000 720,000 180,270 539,730 Cash Finance lease
receivable 80,000 Unearned interest revenue Interest revenue 27,584 Cash Finance lease receivable 80,000
80,000 27,584 2014 Apr. 1 1 Unearned interest revenue Interest revenue 52 80,000 9,194 9,194
Chapter 4 Leases Dec. 31 Unearned interest revenue Interest revenue 32,893 x 9/12 24,991 24,991 (e)
The asset shall be recorded at P496,512 which is 80,000 x 6.2064. Depreciation for 2013 = 496,512/8 x
9/12 = 46,548 (f) No difference in journal entries. To the lessor, under the direct finance lease, it does not
matter whether the residual value is guaranteed or unguaranteed. 4-15. (Prudent Company) (a) Sales price
Cost of machine Gross profit 1,011,840 784,500 227,340 (b) Gross investment (135,000 x 12) Sales Total
financial revenue over the lease term (c) Interest revenue for 2012 (1,011,840 135,000) x 10% x 6/12 (d)
1,620,000 1,011,840 608,160 43,842 Finance lease receivable Less Unearned interest revenue Net finance
lease receivable, December 31, 2013 1,485,000 564,318 920,682 4-16. (Glad Manufacturing Company) (a)
2013 Apr. 1 Finance lease receivable Cost of sales Unearned interest revenue Sales Finished goods inventory
1,500,000 893,350 426,380 1,026,970 940,000 175,000 x 8 = 1,400,000 1,400,000 + 100,000 = 1,500,000
940,000(100,000 x0.4665)=893,350 175,000 x 5.8684 = 1,026,970 100,000 x 0.4665 = 46,650 1,026,970
+ 46,650 = 1,073,620 1,500,000 1,073,620 = 426,380 1 Dec. 31 Cash Finance lease receivable 175,000
Unearned interest revenue Interest revenue 89,862 x 9/12 67,397 53 175,000 67,397
Chapter 4 Leases 2014 Jan. 1 Interest revenue Unearned interest revenue Apr. 1 Dec. 31 67,397 67,397
Cash Unearned interest revenue Finance lease receivable Interest revenue 175,000 89,862 Unearned
interest revenue Interest revenue 61,011 175,000 89,862 61,011 81,348 x 9/12 Partial amortization table
Date April 1, 2013 April 1, 2013 April 1, 2014 April 1, 2015 Periodic Payment Interest Reduction in
Principal 175,000 175,000 175,000 89,862 81,348 175,000 85,138 93,652 Balance of Principal P1,073,620
898,620 813,482 719,830 *The compound entry may also be presented as follows: Apr. 1 Finance lease
receivable 1,400,000 Sales Unearned interest revenue 1 1 (b) (i) (ii) (c) Cost of sales Finished goods inventory
940,000 Finance lease receivable Cost of sales Unearned interest revenue 100,000 1,026,970 373,030
940,000 Sales Cost of Sales (940,000 46,650) Gross profit on sales Interest Revenue for 2012 (see journal
entries) Sales (1,026,970 + 46,650) Cost of sales (cost of the asset) 46,650 53,350 1,026,970 893,350
133,620 67,397 1,073,620 940,000 4-17. Ruby Company a. Manufacturers or dealers lease, because FV

exceeds CV. The difference represents gross profit, which characterizes a dealers or manufacturers lease. b.
Present value of MLP = 850,365 x 4.6048 Present value of residual value = 166,300 x .5066 Total present
value Carrying value of leased asset Gross Profit Lease arrangement cost Interest income 377,756 x 3/12
Total income in 2013 54 P3,914,080 84,248 P3,998,328 3,200,000 P 798,328 ( 85,000) 94,439 P 807,767
Chapter 4 Leases c. Amortization Table Date Oct. 1, 2013 Oct. 1, 2013 Oct. 1, 2014 Oct. 1, 2015 Periodic
Payment Interest Reduction in Principal P850,365 850,365 850,365 P377,756 321,042 P850,365 472,609
529,323 Balance of Principal P3,998,328 3,147,963 2,675,354 2,146,031 2013 Oct. 1 Finance lease
receivable (850,365 x 6) + 166,300 Cost of goods sold (3,200,000 84,248) Inventory Sales Unearned
interest revenue 5,268,490 3,115,752 3,200,000 3,914,080 1,270,162 1 Selling expense Cash 85,000
85,000 1 Cash 850,365 Finance lease receivable Dec. 31 850,365 Unearned interest revenue Interest
revenue 94,439 94,439 2014 Oct. 1 Cash 850,365 Finance lease receivable 850,365 Dec 31 Unearned
interest revenue Interest revenue (377,756 94,439) + (321,042 x 3/12) d. 363,578 363,578 Amortization
Table for Emerald Date Oct. 1, 2013 Oct. 1, 2013 Oct. 1, 2014 Oct. 1, 2015 Periodic Payment Interest
Reduction in Principal 850,365 850,365 850,365 367,646 309,720 850,365 482,719 540,645 Balance of
Principal P3,914,080 3,063,715 2,580,996 2,040,351 2013 Oct. 1 Leased equipment Finance lease
obligation 3,914,080 3,914,080 Finance lease obligation Cash 850,365 850,365 Dec 31 Interest expense
Interest payable 367,646 x 3/12 = 91,912 31 Depreciation expense Accumulated depreciation 3,914,080/6
x 3/12 91,912 91,912 163,087 163,087 55
Chapter 4 Leases 2014 Oct. 1 Interest payable Interest expense 367,646 91,912 Finance lease obligation
Cash Dec.31 Interest expense Interest payable 309,720 x 3/12 91,912 275,734 482,719 850,365 77,430
77,430 Depreciation expense Accumulated depreciation 652,347 652,347 4-18. (Metro Industries)
Correction to the problem: the equipments fair value is P368,606, instead of P400,000. (a) Sales = (99,046 x
3.1699) + (80,000 x.6830) = P368,606 (b) Sales P368,606 Cost of equipment sold (300,000) Selling expense (
15,000) Interest income (368,606 x 10%) 36,861 Total profit from lease P 90,467 (c) Depreciation expense
recorded by Western (368,606 80,000) / 4 = P 72,152 4-19. (Legend Company) (a) Selling price of the
machinery (150,000 x 4.0373) (b) Deferred gain on January 1, 2013 (605,595 411,750) (c) Depreciation
expense for 2013 (605,595 / 5 years) (d) Interest expense for 2013 (605,595 150,000) x 12% (e) Gain on
sale-leaseback for 2013 (193,845 / 5 years) 605,595 193,845 121,119 54,671 38,769 4-20. (Honest
Company) (a) 2013 July 1 July 1 Dec. 31 Cash Accumulated depreciation Equipment Gain on sale leaseback
540,000 350,000 800,000 90,000 Rent expense Cash 80,000 Prepaid rent Rent expense 40,000 80,000
40,000 56
Chapter 4 Leases (b) 2013 July 1 1 Dec. 31 31 Cash Accumulated depreciation Equipment Gain on sale
leaseback Unearned profit on sale leaseback 540,000 350,000 800,000 50,000 40,000 Rent expense Cash
80,000 Prepaid rent Rent expense 40,000 80,000 40,000 Unearned profit on sale leaseback Profit on sale
leaseback 5,000 5,000 (40,000/4) x 6/12 (c) 2013 July 1 1 Dec. 31 Cash Accumulated depreciation Loss on
sale leaseback Equipment 400,000 350,000 50,000 800,000 Rent expense Cash 80,000 Prepaid rent Rent
expense 40,000 80,000 40,000 (d) 2013 July 1 1 Dec. 31 31 Cash Accumulated depreciation Deferred loss
on sale leaseback Equipment 350,000 350,000 100,000 800,000 Rent expense Cash 80,000 Prepaid rent
Rent expense 40,000 Rent expense/Loss on sale leaseback 12,500 80,000 40,000 Deferred loss on sale
leaseback 100,000 x 6/48 = 12,500 12,500 MULTIPLE CHOICE QUESTIONS Theory MC1 MC2 MC3 MC4
MC5 MC6 MC7 MC8 B D C D D D A C MC9 MC10 MC11 MC12 MC13 MC14 MC15 MC16 C A C A D B A C
MC17 MC18 MC19 MC20 MC21 MC22 MC23 MC24 57 C A C C C A A D
Chapter 4 Leases Problems MC25 MC26 MC27 MC28 MC29 MC30 C C D D C B MC31 MC32 B D MC33
MC34 A B MC35 MC36 MC37 MC38 MC39 MC40 MC41 B D D C A D B MC42 MC43 A D MC44 MC45
MC46 MC47 MC48 MC49 C A B D A D MC50 MC51 MC52 C D A MC53 A MC54 D MC55 MC56 MC57
MC58 A B B B MC59 MC60 D B 900,000 + (500,000 / 5 yrs) = 1,000,000 40,000 + (125,000 x 4) = 540,000;
540,000 / 5 yrs = 108,000 This is an operating lease; thus, there is no interest expense involved. 240,000 x
6/12 = 120,000 3,600,000 / 3 yrs = 1,200,000 3,600,000 x 2/3 = 2,400,000; 600,000 + 900,000 =
1,500,000 2,400,000 1,500,000 = 900,000 500,000 x 4.61 = 2,305,000 2,305,000 500,000 283,400 =
1,521,600; 500,000 (12% x 1,805,000)=283,400 2,305,000 / 6 = 384,167 1,350,000-200,000=1,150,000;
1,150,000 x 10% = 115,000 200,000-115,000 = 85,000 400,000 x 5.95 = 2,380,000 (2,400,000 200,000) /
8 yrs = 275,000 (1,742,174 x 3.48685) + (1,200,000 x .68301) = 6,894,311 (6,894,311 1,200,000)/4 =
1,423,578 1,742,174 X 3.48685 = 6,074,699 6,074,699/4 = 1,518,675 CV = 6,245,450 [(6,245,450

80,000)/6 X 4 ] = 2,135,150 2,135,150 1,250,000 = 885,150 100,000 x 6 = 600,000 100,000 x 4.8 =

480,000; 480,000 100,000 = 380,000 380,000 x 10% x 5/12 = 15,833 3,520,000 2,800,000 = 720,000
3,520,000 600,000 = 2,920,000; 2,920,000 x 10% x 6/12 = 146,000 400,000 300,000 15,000 +
(400,000 X 10%) = 125,000 400,000 (108,951 40,000 interest) = 331,049 323,400 / 4.312 = 75,000;
75,000 x 5 = 375,000; 375,000 323,400 = 51,600 98,512 x 10% = 9,851; 30,000-9,851 =20,149; 98,51220,149=78,363 78,363 x 10% = 7,836 (98,512-5,000) / 4 = 23,378 (30,000 x 2) + 5,000 = 65,000 Initial
direct costs increase the net investment in lease recorded by the lessor; although an unguaranteed residual
value is considered by the lessor and not by the lessee, the terms of the lease already indicated that the
residual value is guaranteed. This excess over the limited hours should be accrued by the end of 2014, even
if payment would be made at January 1, 2015 550,000 400,000 =150,000 ; in the absence of any
information, sales price is presumed to be at fair value. 4,800,000 3,600,000 = 1,200,000 1,200,000 /12 x
6/12 = 50,000 150,000 100,000 = 50,000; 50,000 x 9/10 = 45,000 800,000 710,000 = 90,000 deferred
on Mar. 31; 710,000 650,000 = 60,000 immediate gain on Mar. 31; 60,000 + [(90,000/12) x 9/12] =
65,625 If selling price is at fair value, full amount of gain is recognized immediately. Additional information,
lease term is 12 years out of total life of 25
years. Deferred loss = 650,000 470,000; amortized loss = (180,000/12) x 9/12 = 11,250; 180,000 11,250
= 168,750 58