Name: Judy Mae A.

Lazaga BSA-2B 5/2/2023

Problem 1. Finance Lease - Direct Financing
On January 1, 20x1, ABC Co leased equipment to XYZ, Inc. Information on the lease is

Cost of Equipment P303,735

Useful Life of Equipment 5 years
Lease Term 4 years
Annual Rent Payable at the end of each year 100,000
Interest rate implicit in the lease 12%

Requirements
a. Compute the following
i. Gross Investment
ii. Net-Investment in the lease
iii. Total interest income to be recognized over the lease term
b. Prepare the amortization schedule
c. Journal Entries from January 1,20x1-December 31, 20x1

a. Compute the following

i. Gross Investment
Fixed lease payment 100,000
Multiply by: Lease term 4
Gross investment in lease 400,000

ii. Net-Investment in the lease

Fixed lease payment 100,000
Multiply by: PV of ordinary annuity of 1 at 12%, n=4 3.03735
Net-Investment in the lease 303,735

iii. Total interest income to be recognized over the lease term

Gross investment 400,000
Net Investment 303,735
Unearned interest income 96,265
tion on the lease is shown below.

b. Prepare the amortization schedule

Date Payment Interest Principal
1/1/20x1
12/31/20x1 100,000 36,448 63,552
12/31/20x2 100,000 28,822 71,178
12/31/20x3 100,000 20,281 79,719
12/31/20x4 100,000 10,714 89,286
0.3644819
0.12 c. Journal Entries from January 1,20x1-December 31, 20x1
3.03735 1/1/20x1 Finance Lease Receivable 400,000
Equipment
Unearned interest income

12/31/20x1 Cash 100,000

Lease receivable

Unearned interest income 36,448

Interest income
Present Value
303,735
240,183
169,005
89,286
-

303,735
96,265

100,000

36,448
Problem 2. Finance Lease - Sales Type Lease
On January 1, 20x1, ABC Co leased equipment to XYZ, Inc. Information on the lease is
Cost of Equipment P300,000
Useful life of the Equipment 5 years
Lease Term 4 years
Annual Rent Payable at the start of each year 100,000
Market Rate of Interest 10%

ABC incurred direct cost (broker’s commission) of P20,000 in negotiating the lease. T

Requirements: Compute for the following:

a. Gross Investment in the lease on January 1, 20x1
b. Net-investment in the lease on January 1, 20x1
c. Total interest income to be recognized over the lease term
d. Gross Profit and net-profit from the sale
e. Prepare an amortization schedule
f. Prepare journal entries on January 1,20x1, December 31, 20x1 and January 1, 20x2.

a. Gross Investment in the lease on January 1, 20x1

Fixed Least Payment 100,000
Multiply by: Lease term 4
Total 400,000
Less: Lease payment received at commencement date 100,000
Gross investment in the lease 300,000

b. Net-investment in the lease on January 1, 20x1

0.316987 Annual Rent 100,000
0.1 Multiply by: PV of annuty due of P1 @ 10, n=4 3.48685
3.169865 Total 348,685
3.48685 Less: Lease payment received at commencement date 100,000
Net Investment in the lease 248,685

c. Total interest income to be recognized over the lease term

Gross investment in the lease 300,000
Net investment in te lease 248,685
Unearned Interest Income 51,315
rmation on the lease is shown below:

negotiating the lease. The lease qualifies as a sales lease type.

x1 and January 1, 20x2.

d. Gross Profit and net-profit from the sale

Sales (248,685 + 100,000) 348,685
Cost of sale 300,000
Gross profit 48,685
Direct Cost 20,000
Net profit from sale 28,685

e. Prepare an amortization schedule

Date Payment Interest Principal Present Value
1/1/20x1 248,685
12/31/20x1 100,000 24,869 75,131 173,554
1/1/20x2 100,000 17,355 82,645 90,909

f. Prepare journal entries on January 1,20x1, December 31, 20x1 and January 1, 20x2.

1/1/20x1 Lease receivable 300,000

Equipment 248,685
Unearned interest income 51,315

12/31/20x1 Cash 100,000

Lease Receivable 100,000

Unearned Interest Income 24,869

Interest Income 24,869
1/1/20x2
Problem 3. Direct Financing Lease with Residual Value
On January 1, 20x1, ABC Financing Co leased equipment to XYZ, Inc. Information on the
Cost of Equipment P330,647
Useful Life of Equipment 5 years
Lease Term 4 years
Annual Rent Payable at the end of each year 100,000
Interest Rate Implicit in the lease 10%
Residual Value 20,000

The equipment will revert back to ABC at the end of the lease term. The lease is clas

Requirements: Compute for the following assuming the residual value is (1) guaranteed
a.    Gross Investment in the lease on January 1, 20x1
b.    Net Investment in the lease on January 1, 20x1
c.    Unearned Interest income on January 1, 20x1
d.    Prepare the journal entries on January 1, 20x1 and December 31, 20x1
e.    Prepare the journal entry on December 31, 20x4 if the fair value of the residual
     i.     P20,000

    ii.     P5,000

a.    Gross Investment in the lease on January 1, 20x1

Guaranteed
Gross rentals (100k*4) 400,000
Residual value guarantee 20,000
Gross Investment 420,000

b.    Net Investment in the lease on January 1, 20x1

0.316987 Guaranteed
0.1 PV of gross rentals (100k*3.169865) 316,987
3.169865 PV of Residual value guarantee (200k*0.683013) 13,660
0.683013 Total PV - Net Investment 330,647

c.    Unearned Interest income on January 1, 20x1

Guaranteed
Gross investment 420,000
Net investment - 330,647
Unearned Interest Income 89,353

d.    Prepare the journal entries on January 1, 20x1 and December 31, 20x1
Guaranteed
1/1/20x1 Finance Lease Receivable 420,000
Unearned Interest Income 89,353
Equipment 330,647
12/31/20x1 Cash 100,000
Unearned Interest Income 33,065
Finance Lease Receivable 100,000
Interest Income 33,065

e.    Prepare the journal entry on December 31, 20x4 if the fair value of the residual value
Guaranteed
i. 20,000 Cash 100,000
Unearned Interest Income 10,909
Finance Lease Receivable 100,000
Interest Income 10,909

12/31/20x4 Equipment 20,000

Finance Lease Receivable 20,000

ii. 5,000 Cash 100,000

Unearned Interest Income 10,909
Finance Lease Receivable 100,000
Interest Income 10,909

12/31/20x4 Equipment 5,000

Cash 15,000
Finance Lease Receivable 20,000
Information on the lease is shown below:

. The lease is classified as direct financing lease.

e is (1) guaranteed and (2) unguaranteed

ue of the residual value

Unguaranteed
Gross rentals (100k*4) 400,000
Unguarantee Residual value 20,000
Gross Investments 420,000

Unguaranteed
PV of gross rentals (100k*3.169865) 316,987
PV of Unguarantee Residual value (200k*0.683013) 13,660
Total PV - Net Investment 330,647

Unguaranteed
Gross investment 420,000
Net investment - 330,647
Unearned Interest Income 89,353

Unguaranteed
Finance Lease Receivable 420,000 Date Payment
Unearned Interest Income 89,353 1/1/20x1
Equipment 330,647 12/31/20x1 100,000
12/31/20x2 100,000
Cash 100,000 12/31/20x3 100,000
Unearned Interest Income 33,065 12/31/20x4 100,000
Finance Lease Receivable 100,000
Interest Income 33,065

Unguaranteed
Cash 100,000
Unearned Interest Income 10,909
Finance Lease Receivable 100,000
Interest Income 10,909

Equipment 20,000
Finance Lease Receivable 20,000

Cash 100,000
Unearned Interest Income 10,909
Finance Lease Receivable 100,000
Interest Income 10,909

Equipment 5,000
Impairment Lost 15,000
Finance Lease Receivable 20,000
Interest Principal Present Value
330,647
33,065 66,935 263,712
26,371 73,629 190,083
19,008 80,992 109,091
10,909 89,091 20,000
Problem 4. Sales Type Lease with Residual Value
On January 1, 20x1, ABC Financing Co. leased equipment to XYZ Inc. Information on the
Cost of Equipment P300,000
Useful Life of Equipment 5 years
Lease Term 4 years
Annual rent payable at the end of each year 100,000
Market rate of interest 10%
Residual Value 20,000

The equipment will revert back to ABC at the end of the lease term. The lease is clas

Requirements: Compute for the following assuming the residual value is (1) guaranteed
a. Gross investment in the lease on January 1, 20x1
b. Net-investment in the lease on January 1, 20x1
c. Total interest income to be recognized over the lease term
d. Sales, cost of sales and gross profit recognized on the lease

a. Gross investment in the lease on January 1, 20x1

Guaranteed
Total Rental (100k*4) 400,000
Residual Value Guarantee 20,000
Gross investment 420,000

0.3169865 b. Net-investment in the lease on January 1, 20x1

0.1 Guaranteed
3.169865 Annual Rent (100k*3.169865) 316,987
0.683013 Residual Value guarantee (200k*0.683013) 13,660
Net Investment 330,647

c. Total interest income to be recognized over the lease term

Guaranteed
Gross Investment 420,000
Net Investment 330,647
Unearned Interest Income 89,353

d. Sales, cost of sales and gross profit recognized on the lease

Guaranteed
Sales
PV of rentals 316,987
Add: PV of guaranteed residual val. 13,660
Adjusted sales 330,647
Cost of sales - 300,000
Gross Profit 30,647
Inc. Information on the lease is shown below.

term. The lease is classified as sales type lease.

value is (1) guaranteed and (2) unguaranteed

Unguaranteed
Total Rental (100k*4) 400,000
Unguaranted Residual Value 20,000
Gross investment 420,000

Unguaranteed
Annual Rent (100k*3.169865) 316,987
Unguaranteed Residual Value (200k*0.683013) 13,660
Net Investment 330,647

Unguaranteed
Gross Investment 420,000
Net Investment 330,647
Unearned Interest Income 89,353

Unguaranteed
Sales
PV of rentals 316,987
Cost of Sales:
Cost (300,000)
PV of Residual Value (13,660) 286,340
Gross Profit 30,647
Problem 5. Operating Lease- Lessor

On January 1, 20x1, Lessor entered into an operating lease. Information follows:

Annual Rent payable at the end of each year P100,000
Lease bonus paid by lessee to lessor 20,000
Security deposit paid by the lessee to the lessor 15,000
Lease term 5 years

Additional Information:
●   Annual rent payment includes P5,000 to cover for costs of administrative tasks
●   Additional rent of 10% is to be paid for any excess of sales of Lessee over P1,000,0
●   The security deposit will be returned to Lessee at the end of lease term. The approp
●   Annual depreciation on the leased asset is P70,000
●   Other costs related to the earning of lease income are P5,000

Requirements: Compute for the profit earned on the lease transaction in 20x1.

Annual Rent 100,000

Add: Lease Bonus 20,000
Add: Additional Rent 110,000
Less: Administrative Cost 5,000
Less: Annual Depreciation 70,000
Less: Other cost 5,000
Profit Earned 150,000
ation follows:
P100,000

5 years

trative tasks
essee over P1,000,000. Lessee’s sales for 20x1 are P1,100,000.
se term. The appropriate discount rate is 12%

on in 20x1.
 Date Payment Interest Principal
1/1/20x1
12/31/20x1 500,000 182,238 317,762
12/31/20x2 500,000 144,107 355,893
12/31/20x3 500,000 101,399 398,601
12/31/20x4 500,000 53,567 446,433
Present Value
1,518,650
1,200,888
844,995
446,394