APL University of San Carlos ‘School of Business and Economics Department of Accountancy Ac2201 1 Major Exam Name: cous. Jemue Aevania a. Sched: AW 4:80 Pm 6:00pm Date: forthe 42023, L ‘MULTIPLE CHOICE QUESTION Choose the letter that best corresponds to your answer on the answer sheet provided. WRITE in CAPITAL LETTER. NO ERASURES ALLOWED (NX2). 1, Under IFRS, a lessee is required to recognize +a. Right of use asset and lease liability b, Right of use asset but not lease liability ¢. Lease liability but not right of use asset . Neither right of use asset nor lease liability 2. The lessee may apply the operating lease model under what condition? G. Short-term lease b. Low value lease . Both short-term lease and low value lease d. Under all circumstances 3. Ashort-term lease is defined os a. Twelve months or less 'b. Six months or less ¢. Twelve-month lease with a purchase option d. Two-year lease with option to terminate 4, Which statement is TRUE about low value lease? 2. The value of an underlying asset is based on the valve of the osset when new regardless of the age of the asset bb. The term of alow value lease may be more than twelve months ¢. An underlying asset does not qualify as low value lease if the nature of the asset is such that the asset is typically not of low value when new. d. All of these statements are true about low valve lease. A tight of use asset is a. Cost b. Fair Value c. Curent cost d. Present value expected cash inflows ially measured at 6. The cost of right of use asset comprises all, except The present value of lease payments . Lease payments made to lessor on or before commencement date ‘ ¢. Initial direct cost incured by lessee d. . Estimated cost of dismantling, removing or restoring the underlying asset for which the lessee has no present obligation 2 7. The right of use asset is reported os . Noncurrent as separate line stemb. Property, plant and equipment . Intangible asset d. Investment property 8. A lessee with a lease containing a purchase option that is reasonably certain to be exercised should depreciate the right of use asset over ©. Useful life of the asset 'b. Lease term Cc. Useful fe of the asset or the lease term, whichever is shorter d. Useful life of the asset or the lease term, whichever is longer 9. Alease liability is measured at a. The absolute amount of lease payments b. The present value of lease payments . The present valve fixed lease payments d, The fair value of the underiying asset 10. The lease payments include all of the following, except @. Fixed lease payments b. Variable lease poyments C. Exercise price of a purchase option that is not reasonably cerfain to be exercised 4, Residual value guarantee of the lessee. NV.A sieyear finance lease entered into on December 31 of the curent year specified equal ‘nnual lease payments due on December 3! of each yeor. The fist annual lease payment paid ‘on December 31 of the current year consists of which of the following? . Interest expenses b. Lease liability ¢. Both interest expense and lease liability 4d. Neither interest expense nor lease liability 12. Asix-year finance lease specified equal annual lease payments. The lease payments in the fifth year applicable to the reduction of the lease fablity should be ©. Less than in the fourth year 4 b. More than in the fourth year Hs cc. The some asin the sxth year Re 4d. More than in the sich year 13. lessee had ten-year finance lease requiring equal annual payments. The reduction of the lease liobilty in the second year should equal @. The current licbilty shown for the lease at the end of fist year 'b. The current licbiity shown for the lease at the end of second year Cc. The reduction of the lease liability in the fist year . One-tenth of the original lease liabiity 14. Rent receivedin advance by the lessor nan operating lease should be recognized os revenue 9. When received . At the lease inception c. At the lease expiration d. In the period specified by the lease 15. When should a lessor recognize in income a non-refundable lease bonus Paid by lessee on signing an operating lease? Page2of7@, When received b. At the inception of the lease ¢. At the lease expiration d. Over the lease term 16, Lease payments under an operating lease shall be recognized as ren! income on ©. Straight line basis over the lease term unless another systematic basis is representative of the time pattem of the user's benefit b. Diminishing balance basis c. Sum of units basis d. Cash basis 17. As an inducement to enter a lease, a lessor granted a lessee twelve months of free rent under five-year operating lease. The lease was effective at the beginning of the current year and provides for monthly rental payments to begin at the beginning of next year. The lessee made the first rental payment at the end of the current year. In the income statement for the current year, the lessor shall report rent revenue equal to ra. Tero “b. Cash received during the current year ¢. One-fourth of the total cash received d. One-ffth of the otal cash to be received over the life of the lease 18. Which statement characterizes an operating lease? @. The lessee records depreciation and interest. 'b. The lessee records the lease obligation related to the underlying asset. ©. The lessor transfers file of the underlying asset to the lessee for the duration of the lease tem . The lessor records depreciation and lease revenue. 19. A ten-year operating lease provides for a 10% increase in annual rent every five years. In the sixth year compared to fifth year, what could be the effect on the expenses? a. Rent and interest expense will both increase b. Interest expense will Increase but not rent expense c. Rent expense wil increase but not interest expense d. No increase in both rent and interest expense 20. The lessor should report the underlying asset under an operating lease and income therefrom 8 which of the following? . The asset should be kept off ihe statement of financial position and the lease income should go fo other comprehensive income, b. The asset should be kept off the statement of financial position and the lease income should go to the income statement, ‘c. The asset should be reported in the statement of financial position according to its nature, “and the lease income should go to other comprehensive income. d, The asset should be reported in the statement of financial position according to its nature ‘and the lease income should go to the income statement. 21. The classification of a lease is normally canied out G. At the end of the lease term b. After a “cooling off" period of one year cc. At the inception of the lease d. When the entity deems it to be necessary22. The clossiication of lease as either operating lease or finance lease on the part of the lessor is based on a. The length of the lease 'b, The transfer of the risks and rewards of ownership c. The lease poyments being ot least 50% of fair valve d, The economic lfe of the underlying asset 23, All of the following situations would prima facie lead to a lease being classified as 0 finance lease, except «. Transfer of ownership fo the lessee at the end of the lease term b. Option to purchase at a value below the fair valve of the underlying asset . The lease term is for o mojor part of the asset's life. 4d. The present valve of the lease payments is 50% of the fair value of the asset 24, Net investment in a sales type lease is equal to 4, Gross investment in the lease less uneamed finance income b. Cost of the underlying asset cc. Thelease payments 4d, The lease payments less unguoranteed residual valve 25. Which statement characterizes a sales type lease? ‘a. The lessor recognizes only interest over the useful life of the asset 'b, The lessor recognizes only interest revenue over the lease ferm . The lessor recognizes a decier profil at lease inception and interest revenue over the lease term 4. The lessor recognizes a decler profit al lease inception and interest revenue over the useful lite of the asset. (OPEN ENDED PROBLEMS, Provide your answers fo the answer sheet provided. (NX2) a PROBLEM 1 At the beginning of current year, Southstor Company leased @ building with the following information: 4, [®,000 DAnnual rental payable at the end of each lease year 1,500,000 \ Inifil direct cost paid 405,000 = Lease incentive received 50,000 ¥ Lease bonus paid fo lessor before commencement of lease 300,000 _y_ Present Value of cost of restoring the building as required by Contract Discounted af 8% 745,000 Purchase option thot is reasonably certain 1,000,000 Lease ferm i 6 years lO years Useful ie of building 2 impicit interest rate 10% 1,008 00. PV of an ordinary annuity of | at 10% for 6 periods 436 PV of | at 10% for 6 periods 0.56 26. What amount should be recorded initially as cost of right of use asset? 27. What amount should be recorded as annual depreciation of the right of use asset? On 28, What total amount should be reporied as interest expense for the current year? 2. What amount should be reported as lease liability at year-end? ess Ns TOKO 1,900,080 6,540,000 7 Craw Coe . 36 2 Oe 9, 9F6, GO $5,000 , OF, 540 : [0 ,0¢5,200 542,000 300,000 Fea bom Paid, 0, F 796, D (ease Gob, 28,088 W (0 (13.5 000F osiem 2 Io "onuary 1, 2022, Nun Compony leased m. 0 useflife ofthe assets 20 ye on January 1 of each yer 'achinery from Chin Company for a 10-year period. Years. Equal annual payments under the lease are P200,000 and are or starting Jonuory 2022, The present value on Jonuary 1, 2022 of the lease payments over the lease term discounted at impicit interest rate of 10% was P1,352,000, The lease provided for a transfer of file to the lessee upon expiration of the lease term. ¢ao;t00 Sue 30. What amount should be reported as lease liability on December 31, 2022 a WiSzi00e 31, What amount of lease liability should be reported as noncurrent on December 31, 2022 32. What amount should be reported as interest expense for 20227 33. What amount should be reported as depreciation of the right of use assets for 20227) DD.00 PROBLEMS. ¥ 5200) 600 Wipro gies (On January 1, 2022, Northstar Company entered into an 8-year lease of a floor of building with Useful life of 15 years with the following terms: ‘Annual rental for the fist three years payable at the end of each year 300,000, ‘Annual rental for the next five years payable at the end of each year 400,000 Implicit interest rate 10% PV of an ordinary annuity of | at 10% for three periods. 2.49 PY of an ordinary annuity of | at 10 for five years 3.79 PV OF AT 10% for three periods 07s The lease provided for neither c transfer of ile fo the lessee nor a PUrCHOSE OPIION. 45,999) 7 34. What amount should be reported as lease lability on January 1. mR * a0 On 35, What amount should be reported as interest expense for 2022 — hs 36, What amount should be as interest expense for 2025 — Ye, boy 00, G0 27 het anewtsnoude repre cess ent nbaconte 3]. anst 7 POO lo %5 yod Hoary \,6! ee PROBLEM 4 taeseot 1530, 6% 1608.29 4 TSe;e00 ‘On June 1, 2022, Anton Company, as lessor, entered into a real estate lease agreement for anew building, The lease is accounted for as an operating lease and fully executed on that day. ‘According fo the terms of the lease, rentals of 300,000 per month are scheduled fo begin on November 1, 2022. ‘AS an incentive, the period from June 1 10 October 31, 2022 is rent free. The lease term spans § years. Anton Company has o calendar year-end, OA 38, What amount should be recognized as total rent income over the lease tem? 39. What amount should be reported as rent income for 20222 \ 3 inOvias ¥ 2 3000,000 4 = 310 eens = (00,000 7 7 ~ r6o9,000 At the beginning of current year. Rapp Company leased a new machine to Lake Company for 5 yeors. The Annual Rentals P900,000. ditionally, Lake Company poid 500,000 to Rapp Company as a lease bonus and P250,000 os a secutity deposit fo be refunded upon expiration of the lease. pete PogeSot760,00 eer 40. What amount should be reported os rent revenue for the current year? PROBLEM 6 ‘Ai the beginning of current year, Lyle Company entered it equipment. A third pory guaranteed the residual value of the equipme estimated to be P1,200,000 at the end of the. lease term. into a 5-year direct financing lease of on nt under the lease ‘Annual lease poyments of P1.000,000 are due at the end of each lease yoo. TIR- 107: The remaining usetu! life of the equipment wos sik years at the commencement _ the lease. (For PV factors round off to 2 decimal places) 41, Whe! amount should be reported os net lease receivable of the lessor al the commencement ofthe lease? 200, 009 42, What amount should be reported 0s gross investment in the lease? “¥ 260,900 abort! 43, What amount should be reported as total unearned interest income? 1/0 p80 « 44, What amount should be reported as interest income for the current year? 60,000 (0 PROBLEM 7 On April 1, 2022, Oriental Company leased equipment to another entity. The lease wos appropriately recorded as a sales type lease for an 8-year period with an implicit interest rate of 10%. The fist of eight equal payments of P700,000 wos made on Api I, 2022. ‘The cost of the equipment to Oriental Company was P3,700,000. The equipment had an estimated useful fife of 8 years with no residual valve. The present value of on annuity of 1 in advance at 10% for 8 periods is 5.868. The entity followed the calendar year and used the perpetual inventory system. 41,000 45, What amount should be reported os grass investment in the lease? 370,090 (99,674, 00 46, What amount should be reported as net investment in the lease? $702,000 2 47. What amount should be reported as interest income for the current year? 48, What amount should be reported os gross income on sale? 500,000 - 4, 700,00 Problem 8 21,9100, 20 At the beginning of current year, Racquel Company sold a buiiding and immediately leased it back. The entity provided the following data regarding the sale and leaseback transaction: Sole price at above fair value 9,000,000 Fair value of building 8,000,000 Carrying omount of building 7,200,000 Annual rental payable at the end of each year 600,000 Remaining life of building. 20 yeors Lease term Ayears implicit interest rate 1% PV of an ordinary annuity of 1 at 12% for four periods 3.037 aoa 0 1, §22,206 49, What amount should be reported os cost of right of use asset? 50. Whot amount should be reported as gain on ight transfered to buyerles#o"% 5,544, 600 Page 6 ot7Answer sheet (AC2201) 1*t Major EXAM. (Answer Key) Name: ‘Schedule: 4A 26. P8,700,000 2c 27. P870,000 3A 28. P785,000 4.D 29. P6,310,000, 5A 30._P1,152,000, 6D 31._P1,067,000 TA 32._P115,200 B.A 33._P67,600. 9B 34. P1,884,000, 10. 35. P188,400 11.8 36. P151,460 12.8 37. P1,266,064 13. 38._P16,500,000 14.D 39. P1,925,000 15. D 40. P1,000,000 16.A 41. P4,534,000 17D 42. P6,200,000 18.D 43. P1,666,000 419. D 44. 620,000 20.D 45. P5,600,000 21.¢ 46. P4,107,600 22.8 47. P255,570 23.D 48. P407,600 24. A 49. P739,980 25.C 50. P717,780