NAME: _____________________________

UPAME Incorporated leased a machinery to UPAYOU Corporation. The term of the lease is 8 years while the leased asset has
an estimated useful life of 10 years. The lessor's implicit interest rate is 8%, with the following annual cash flows:

1st year to 3rd year 840,000

4th year to 6th year 860,000
7th year to 8th year 880,000
The estimated cost to dismantle the machinery is Php80,000.

Case 1 The lease has a guaranteed residual value of Php457,101.

Case 2 The lease has an unguaranteed residual value of Php457,101.

Compute the balances based on the commencement

date as follows: Case 1 Case 2
Commencement date Jan. 1, 2019 Oct. 1, 2019 Jan. 1, 2019 Oct. 1, 2019
Timing of lease payment In advance End End In advance
Lease liability, commencement date
Finance lease receivable, December 31, 2019
Unearned interest income, December 31, 2020
Interest expense in 2020
Interest income in 2020
Depreciation expense in 2021
Book value of Right of Use, December 31, 2021

UPAME leased an office space to UPAYOU Corporation. The area specified in the leased contract is 1,000 square meters with a
monthly rate of Php1,000 per month. The lease payments are payable on an annual basis starting August 31, 2020. The lease
contract has a term of 10 years starting September 1, 2019. The implicit interest rate of the lessor is 12%.

UPAYOU revised the lease contract effective September 1, 2025. On the same date, the lessor's implicit interest rate is 10%.

Case 1 The lease payments will increase to Php1,200 per month.

Case 2 The lease term will increase to 12 years.
Case 3 The leased space will be reduced to 800 sqm., with a corresponding decrease in rentals.
Case 4 The leased space will be increased to 1,300 sqm., with a corresponding increase in rentals.

The revised lessor's implicit interest rate is 11%.

Compute the following: Case 1 Case 2 Case 3 Case 4
Interest expense in 2025
Carrying value of Right of Use, December 31, 2026
Carrying value of Lease Liability, December 31, 2026
Increase or (decrease) in Lease Liability