31. Use the following information for questions 31 and 32.

On January 1, 2021, Ogleby Corporation signed a five-year noncancelable lease for

equipment. The terms of the
lease called for Ogleby to make annual payments of P60,000 at the end of each year for five
years with title to pass
to Ogleby at the end of this period. The equipment has an estimated useful life of 7 years and
no residual value.
Ogleby uses the straight-line method of depreciation for all of its fixed assets. Ogleby
accordingly accounts for this
lease transaction as a finance lease. The minimum lease payments were determined to have a
present value of
P227,448 at an effective interest rate of 10%.
With respect to this capitalized lease, for 2021 Ogleby should record
a. rent expense of P60,000.
b. interest expense of P22,745 and depreciation expense of P45,489.
45
c. interest expense of P22,745 and depreciation expense of P32,493.
d. interest expense of P30,000 and depreciation expense of P45,489.
32. With respect to this capitalized lease, for 2022 Ogleby should record
a. interest expense of P22,745 and depreciation expense of P32,493.
b. interest expense of P20,469 and depreciation expense of P32,493.
c. interest expense of P19,019 and depreciation expense of P32,493.
d. interest expense of P14,469 and depreciation expense of P32,493.
33. Emporia Corporation is a lessee with a finance lease. The asset is recorded at P450,000
and has an economic life of
8 years. The lease term is 5 years. The asset is expected to have a fair value of P150,000 at the
end of 5 years, and
a fair value of P50,000 at the end of 8 years. The lease agreement provides for the transfer of
title of the asset to the
lessee at the end of the lease term. What amount of depreciation expense would the lessee
record for the first year
of the lease?
a. P90,000
b. P80,000
c. P60,000
d. P50,000
34. Pisa, Inc. leased equipment from Tower Company under a four-year lease requiring equal
annual
payments of P86,038, with the first payment due at lease inception. The lease does not
transfer
ownership, nor is there a bargain purchase option. The equipment has a 4-year useful life and
no
residual value. If Pisa, Inc.’s incremental borrowing rate is 10% and the rate implicit in the
lease
(which is known by Pisa, Inc.) is 8%, what is the amount recorded for the leased asset at the
lease inception?
PV Annuity Due PV Ordinary Annuity
8%, 4 periods 3.57710 3.31213
10%, 4 periods 3.48685 3.16986
a. P307,767
b. P272,728
c. P284,969
d. P300,000
35. Pisa, Inc. leased equipment from Tower Company under a four-year lease requiring equal
annual
payments of P86,038, with the first payment due at lease inception. The lease does not
transfer
ownership, nor is there a bargain purchase option. The equipment has a 4-year useful life and
no
residual value. Pisa, Inc.’s incremental borrowing rate is 10% and the rate implicit in the lease
(which is known by Pisa, Inc.) is 8%. Assuming that this lease is properly classified as a
finance
lease, what is the amount of interest expense recorded by Pisa, Inc. in the first year of the
asset’s life?
PV Annuity Due PV Ordinary Annuity
8%, 4 periods 3.57710 3.31213
10%, 4 periods 3.48685 3.16986
a. P0
b. P24,621
c. P17,738
d. P22,798
36. Pisa, Inc. leased equipment from Tower Company under a four-year lease requiring equal
annual
payments of P86,038, with the first payment due at lease inception. The lease does not
transfer
ownership, nor is there a bargain purchase option. The equipment has a 4 year useful life and
no
residual value. Pisa, Inc.’s incremental borrowing rate is 10% and the rate implicit in the lease
(which is known by Pisa, Inc.) is 8%. Assuming that this lease is properly classified as a
finance
lease, what is the amount of principal reduction recorded when the second lease payment is
made in Year 2?
PV Annuity Due PV Ordinary Annuity
8%, 4 periods 3.57710 3.31213
10%, 4 periods 3.48685 3.16986
a. P86,038
b. P61,417
c. P63,240
d. P68,3006
37. Pisa, Inc. leased equipment from Tower Company under a four-year lease requiring equal
annual
payments of P86,038, with the first payment due at lease inception. The lease does not
transfer
ownership, nor is there a bargain purchase option. The equipment has a 4-year useful life and
no
residual value. Pisa, Inc.’s incremental borrowing rate is 10% and the rate implicit in the lease
(which is known by Pisa, Inc.) is 8%. Pisa, Inc. uses the straight-line method to depreciate
similar
assets. What is the amount of depreciation expense recorded by Pisa, Inc. in the first year of
the
asset’s life?
PV Annuity Due PV Ordinary Annuity
8%, 4 periods 3.57710 3.31213
10%, 4 periods 3.48685 3.16986
a. P0 because the asset is depreciated by Tower Company.
b. P71,242
c. P76,942
d. P75,000
38. Which of the following lease-related revenue and expense items would be recorded by
Yates if the lease is
accounted for as an operating lease?
a. Rental Revenue
b. Interest Income
c. Depreciation Expense
d. Rental Revenue and Depreciation Expense
39. Assume that Leicester Ltd. leased equipment that was carried at a cost P159,769 to
Wentworth Company. The
term of the lease is 6 years beginning January 1, 2022, with equal rental payments of P32,000
at the beginning
of each year. All executory costs are paid by Wentworth directly to third parties. The fair
value of the
equipment at the inception of the lease is P159,767. The equipment has a useful life of 6 years
with no
residual value. The lease has an implicit interest rate of 8%, no bargain purchase option, and
no transfer
of title. Based on this information, Leicester’s January 1,2022, journal entries at the inception
of the
lease would include:
a. A debit to Equipment for P159,767
b. A credit to Lease Receivable for P32,000
c. A credit to Cash for P159,767
d. A debit to Lease Receivable for P32,000
40. Mays Company has a machine with a cost of P400,000 which also is its fair value on the
date the machine is leased
to Park Company. The lease is for 6 years and the machine is estimated to have an
unguaranteed residual value of
P40,000. If the lessor's interest rate implicit in the lease is 12%, the six beginning-of-the-year
lease payments
would be
a. P92,361
b. P82,465
c. P78,180
d. P66,667