CHAPTER 8 – EXTINGUISHMENT OF FINANCIAL LIABILITIES

Straight Problems
1. WARBLER Company
PV Periodic
PV Factor of Factor Payments Fair Value
Single payment for 6 periods at 10% 0.564474 4,000,000 2,257,896
Ordinary annuity for 6 periods at 10% 4.355261 480,000 2,090,525
Initial carrying amount, 1/1/21 4,348,421

Carrying Premium
Int. Interest Amount/ Face on Bonds
Date Pmts. Expense Amort. Present Value Amt. Payable
Jan. 1, 2021 4,348,421 4M 348,421
Dec. 31, 2021 480K 434,842 (45,158) 4,303,263 4M 303,263
Dec. 31, 2022 480K 430,326 (49,674) 4,253,589 4M 253,589
Dec. 31, 2023 480K 425,359 (54,641) 4,198,948 4M 198,948
Dec. 31, 2024 480K 419,895 (60,105) 4,138,843 4M 138,843

Scenario 1:

Bonds payable 4,000,000

Premium on bonds payable 198,948
Loss on retirement – P/L 101,052
Cash 4,300,000

Scenario 2:

Bonds payable 4,000,000

Premium on bonds payable 138,843
Cash 4,120,000
Gain on retirement – P/L 18,843

Scenario 3:

Bonds payable 4,000,000

Premium on bonds payable 253,589
Cash 4,200,000
Gain on retirement – P/L 53,589
 2. WARBLER Company
Periodic
PV Factor of PV Factor Payments Fair Value
Single payment for 7 periods at 7% 0.622750 5,000,000 3,113,750
Ordinary annuity for 7 periods at 7% 5.389289 450,000 2,425,180
Initial carrying amount, 1/1/22 5,538,930

Carrying Premium
Int. Interest Amount/ Face on Bonds
Date Pmts. Expense Amort. Present Value Amt. Payable
Jan. 1, 2022 5,548,930 5M 548,930
Dec. 31, 2022 450K 387,725 (62,275) 5,476,655 5M 476,655
Dec. 31, 2023 450K 383,366 (66,634) 5,410,021 5M 410,021
Dec. 31, 2024 450K 378,701 (71,299) 5,338,722 5M 338,722
Dec. 31, 2025 450K 373,711 (76,289) 5,262,433 5M 262,433

Scenario 1:

Bonds payable (5M/2) 2,500,000

Premium on bonds payable (410,021/2) 205,011
Cash 2,600,000
Gain on retirement – P/L 105,011

Scenario 2:

Bonds payable (5M x 40%) 2,000,000

Premium on bonds payable (338,722 x 40%) 135,489
Loss on retirement – P/L 114,511
Cash 2,250,000

Scenario 3:

Bonds payable (5M x 4K/5K) 4,000,000

Premium on bonds payable (262,433 x 4K/5K) 209,946
Cash 4,150,000
Gain on retirement – P/L 59,946

Scenario 4:

Bonds payable (5M x 3K/5K) 3,000,000

Premium on bonds payable (338,722 x 3K/5K) 203,233
Loss on retirement – P/L 196,767
Cash 3,400,000
 3. CRANE Company’

PV Periodic
PV Factor of Factor Payments Fair Value
Single payment for 7 periods at 14% 0.399637 6,000,000 2,397,822
Ordinary annuity for 7 periods at 14% 4.288305 720,000 3,087,580
Initial carrying amount, 1/1/23 5,485,402

Carrying Discount
Int. Interest Amount/ Face on Bonds
Date Pmts. Expense Amort. Present Value Amt. Payable
Jan. 1, 2023 5,485,402 6M 514,598
Dec. 31, 2023 720K 767,956 47,956 5,533,358 6M 466,642
Dec. 31, 2024 720K 774,670 54,670 5,588,028 6M 411,972
Dec. 31, 2025 720K 782,324 62,324 5,650,352 6M 349,648
Dec. 31, 2026 720K 791,049 71,049 5,721,401 6M 278,599

Scenario 1:

Carrying amount, 12/31/23 5,533,358

Add: Partial amortization (54,670 x 3/12) 13,668
Carrying amount, 4/1/24 5,547,026

Interest expense (774,670 x 3/12) 193,668

Interest payable (6M x 12% x 3/12) 180,000
Discount on bonds payable 13,668

Interest payable 180,000

Bonds payable 6,000,000
Cash (5,480,000 + 180,000) 5,660,000
Discount on bonds payable
(466,642 – 13,668) 452,974
Gain on retirement (5.48M – 5,547,026) 67,026

Scenario 2:

Carrying amount, 12/31/23 5,533,358

Add: Partial amortization (54,670 x 9/12) 41,003
Carrying amount, 9/30/24 5,574,361

Interest expense (774,670 x 9/12) 581,003

Interest payable (6M x 12% x 9/12) 540,000
Discount on bonds payable 41,003

Interest payable 540,000

 Bonds payable 6,000,000
Cash 5,940,000
Discount on bonds payable
(466,642 – 41,003) 425,639
Gain on retirement (5.94M – 5,574,361 – 540K) 174,361
Scenario 3:

Carrying amount, 12/31/24 5,588,028

Add: Partial amortization (62,324 x 6/12) 31,162
Carrying amount, 7/1/25 5,619,190

Interest expense (782,324 x 6/12) 391,162

Interest payable (6M x 12% x 6/12) 360,000
Discount on bonds payable 31,162

Interest payable 360,000

Bonds payable 6,000,000
Loss on retirement (5.75M – 5,619,190) 130,810
Cash (5.75M + 360K) 6,110,000
Discount on bonds payable
(411,972 – 31,162) 380,810
Scenario 4:

Carrying amount, 12/31/24 5,588,028

Add: Partial amortization (62,324 x 1/12) 5,194
Carrying amount, 2/1/25 5,593,222

Interest expense (782,324 x 1/12) 65,194

Interest payable (6M x 12% x 1/12) 60,000
Discount on bonds payable 5,194

Interest payable 60,000

Bonds payable 6,000,000
Cash 5,610,000
Gain on retirement 43,222
Discount on bonds payable
(411,972 – 5,194) 406,778
Scenario 5:
Carrying amount, 12/31/25 5,650,352
Add: Partial amortization (71,049 x 8/12) 47,366
Carrying amount, 9/1/26 5,697,718

Interest expense (791,049 x 8/12) 527,366

Interest payable (6M x 12% x 8/12) 480,000
Discount on bonds payable 47,366
 Interest payable 480,000
Bonds payable 6,000,000
Cash 6,000,000
Gain on retirement 177,718
Discount on bonds payable
(349,648 – 47,366) 302,282

4. FALCON Company

Periodic
PV Factor of PV Factor Payments Fair Value
Single payment for 2 periods at 9% 0.841680 7,000,000 5,891,760
Ordinary annuity for 2 periods at 9% 1.759111 560,000 985,102
Carrying amount, 12/31/23 6,876,862
Discount on loans payable (7M – 6,876,862) 123,138

Scenario 1:
Loans payable 7,000,000
Discount on loans payable 123,138
Share capital (200K x 25) 5,000,000
Share premium (32 – 25) x 200K 1,400,000
Gain on extinguishment 476,862

Scenario 2:
Loans payable 7,000,000
Loss on extinguishment 523,138
Discount on loans payable 123,138
Share capital (200K x 25) 5,000,000
Share premium (37 – 25) x 200K 2,400,000

Scenario 3:
Loans payable 7,000,000
Discount on loans payable 123,138
Share capital (200K x 25) 5,000,000
Share premium (6.7M – 5M) 1,700,000
Gain on extinguishment 176,862

Scenario 4:
Loans payable 7,000,000
Loss on extinguishment 223,138
Discount on loans payable 123,138
Share capital (200K x 25) 5,000,000
Share premium (7.1M – 5M) 2,100,000
Scenario 5:
Loans payable 6,000,000
Discount on loans payable 123,138
Share capital (200K x 25) 5,000,000
Share premium 876,862

5. OSTRICH Company
Periodic
PV Factor of PV Factor Payments Fair Value
Single payment for 8 periods at 9% 0.501866 8,000,000 4,014,928
Ordinary annuity for 8 periods at 9% 5.534819 640,000 3,542,284
Initial fair value, 1/1/23 7,557,212

Carrying Discount
Int. Interest Amount/ Face on Bonds
Date Pmts. Expense Amort. Present Value Amt. Payable
Jan. 1, 2023 7,557,212 8M 442,788
Dec. 31, 2023 640K 680,149 40,149 7,597,361 8M 402,639
Dec. 31, 2024 640K 683,762 43,762 7,641,123 8M 358,877
Dec. 31, 2025 640K 687,701 47,701 7,688,824 8M 311,176
Dec. 31, 2026 640K 691,994 51,994 7,740,818 8M 259,182

Scenario 1:
Bonds payable 8,000,000
Discount on bonds payable 358,877
Share capital (650K x 10) 6,500,000
Share premium (11 – 10) x 650K 650,000
Gain on extinguishment 491,123

Scenario 2:
Bonds payable 8,000,000
Loss on extinguishment 191,176
Discount on bonds payable 311,176
Share capital (700K x 10) 7,000,000
Share premium (8M x 98.5%) – 7M 880,000

Scenario 3:
Carrying amount, 12/31/25 7,688,824
Add: Partial amortization (51,994 x 6/12) 25,997
Carrying amount, 7/1/26 7,714,821
Interest expense (691,994 x 6/12) 345,997
Interest payable (8M x 8% x 6/12) 320,000
Discount on bonds payable 25,997
 Bonds payable 8,000,000
Interest payable 320,000
Loss on extinguishment 125,179
Discount on bonds payable (311,176 – 25,997) 285,179
Share capital (680K x 10) 6,800,000
Share premium (12 – 10) x 680K 1,360,000

6. CASSOWARY Company

Periodic Present
PV Factor of PV Factor Payments Value
Single payment for 6 periods at 10% 0.564474 6,000,000 3,386,844
Ordinary annuity for 6 periods at 10% 4.355261 540,000 2,351,841
5,738,685
Less: Carrying amount 6,000,000
Difference 261,315
Divide by: Carrying amount 6,000,000
Difference in % (<10%, i.e., not substantial modification) 4.36%

Discount on loan payable 388,969

Gain on modification 388,969

Discount on loan payable 261,315

Gain on modification 261,315

Interest expense 573,869

Discount on loan payable 33,869
Cash 540,000

7. NIGHTINGALE Company (Change modification costs to P906,603)

Year Periodic Present

(12/31) PV Factor of PV Factor Payments Value
2024 Single payment for 1 period at 5% 0.952381 0 0
2025 Single payment for 2 periods at 5% 0.907029 500,000 453,515
2026 Single payment for 3 periods at 5% 0.863838 500,000 431,919
2027 Single payment for 4 periods at 5% 0.822702 500,000 411,351
2028 Single payment for 5 periods at 5% 0.783526 500,000 391,763
2029 Single payment for 6 periods at 5% 0.746215 500,000 373,108
2030 Single payment for 7 periods at 5% 0.710681 500,000 355,341
2031 Single payment for 8 periods at 5% 0.676839 10,500,000 7,106,810
9,523,807
Less: Carrying amount 10,500,000
Difference 976,193
Divide by: Carrying amount 10,500,000
Difference in % (<10%, i.e., not substantial modification) 9.30%

December 31, 2023:

Discount on loan payable 476,193
Interest payable 500,000
Gain on modification 976,193

December 31, 2023:

Discount on loan payable 906,603
Cash 906,603

December 31, 2024:

Interest expense (8,617,204 x 6.50%) 560,118
Discount on loan payable 560,118

8. SWIFT Company

Periodic Present
PV Factor of PV Factor Payments Value
Single payment for 6 periods at 7% 0.666342 6,000,000 3,998,052
Ordinary annuity for 6 periods at 7% 4.766540 300,000 1,429,962
5,428,014

|P8,560,000 – (P5,428,014 + P200,000)|

Difference (in %) = = 34.25%
P8,560,000
 Loan payable – old 8,000,000
Interest payable 560,000
Discount on loan payable – new 571,986
Gain on extinguishment 3,131,986
Loan payable – new 6,000,000

Gain on extinguishment 200,000

Cash 200,000

Scenario 2 – Contemporary Approach

Periodic Present
PV Factor of PV Factor Payments Value
Single payment for 6 periods at 6% 0.704961 6,000,000 4,229,766
Ordinary annuity for 6 periods at 6% 4.917324 300,000 1,475,197
5,704,963

Loan payable – old 8,000,000

Interest payable 560,000
Discount on loan payable – new 295,037
Gain on extinguishment 2,855,037
Loan payable – new 6,000,000

Gain on extinguishment 200,000

Cash 200,000

9. PELICAN Company

Year Periodic Present

(12/31) PV Factor of PV Factor Payments Value
2024 Single payment for 1 period at 9% 0.917431
2025 Single payment for 2 periods at 9% 0.841680
2026 Single payment for 3 periods at 9% 0.772183 420,000 324,317
2027 Single payment for 4 periods at 9% 0.708425 420,000 297,539
2028 Single payment for 5 periods at 9% 0.649931 420,000 272,971
2029 Single payment for 6 periods at 9% 0.596267 420,000 250,432
2030 Single payment for 7 periods at 9% 0.547034 7,420,000 4,058,992
5,204,251

|P9,000,000 – (P5,204,251)|
 P9,000,000
Difference (in %) = = 42.17%
Loan payable – old 9,000,000
Discount on loan payable – new 1,795,749
Gain on extinguishment 3,795,749
Loan payable – new 7,000,000

Gain on extinguishment 320,000

Cash 320,000

Scenario 2 – Contemporary Approach

Year Periodic Present

(12/31) PV Factor of PV Factor Payments Value
2024 Single payment for 1 period at 8% 0.925926
2025 Single payment for 2 periods at 8% 0.857339
2026 Single payment for 3 periods at 8% 0.793832 420,000 333,409
2027 Single payment for 4 periods at 8% 0.735030 420,000 308,713
2028 Single payment for 5 periods at 8% 0.680583 420,000 285,845
2029 Single payment for 6 periods at 8% 0.630170 420,000 264,671
2030 Single payment for 7 periods at 8% 0.583490 7,420,000 4,329,496
5,522,134

Loan payable – old 9,000,000

Discount on loan payable – new 1,477,866
Gain on extinguishment 3,477,866
Loan payable – new 7,000,000

Gain on extinguishment 320,000

Cash 320,000
 10. MAGPIE Company
Loan payable 3,000,000
Cash 3,000,000

Loan payable 5,000,000

Land 4,500,000
Gain on extinguishment 500,000

Loans payable 4,000,000

Loss on extinguishment 200,000
Share capital (100K x 20) 2,000,000
Share premium (42 – 20) x 100K 2,200,000

Periodic Present
PV Factor of PV Factor Payments Value
Single payment for 5 periods at 8% 0.680583 6,000,000 4,083,498
Ordinary annuity for 5 periods at 8% 3.992710 300,000 1,197,813
5,281,311

Loan payable – old 8,000,000

Discount on loan payable – new 718,689
Gain on extinguishment 2,718,689
Loan payable – new 6,000,000

Gain on extinguishment 300,000

Cash 300,000
CHAPTER 9 – LESSEE ACCOUNTING – FUNDAMENTAL CONSIDERATIONS
Straight Problems
1. PIGEON Company

Lease Liab./
PV Factor of PV Factor Cash Flows ROU Asset
Ordinary annuity for 7 periods at 8% 5.206370 P900,000 4,685,733

Lease Liability:
Lease Interest Amorti- Carrying
Date Payments Expense zation Amount
Jan. 1, 2023 4,685,733
Dec. 31, 2023 900,000 374,859 (525,141) 4,160,592
Dec. 31, 2024 900,000 332,847 (567,153) 3,593,439

ROU Asset:
Initial measurement, 1/1/23 4,685,733
Less: Depreciation, 2023 (4,685,733/7) 669,390
Carrying amount, 12/31/23 4,106,343
Less: Depreciation, 2024 669,390
Carrying amount, 12/31/24 3,346,953

January 1, Right-of-use asset 4,685,733

2023 Lease liability 4,685,733

December Interest expense 374,859

31, 2023 Lease liability 374,859

December Lease liability 900,000

31, 2023 Cash 900,000

December Depreciation expense 669,390

31, 2023 Right-of-use asset 669,390

December Interest expense 332,847

31, 2024 Lease liability 332,847

December Lease liability 900,000

31, 2024 Cash 900,000

December Depreciation expense 669,390

31, 2024 Right-of-use asset 669,390
 2. PIGEON Company

Lease Liab./
PV Factor of PV Factor Cash Flows ROU Asset
Ordinary annuity for 7 periods at 11% 4.712196 P900,000 4,240,976

Lease Liability:
Lease Interest Amorti- Carrying
Date Payments Expense zation Amount
Jan. 1, 2023 4,240,976
Dec. 31, 2023 900,000 466,507 (433,493) 3,807,483
Dec. 31, 2024 900,000 418,823 (481,177) 3,326,306

ROU Asset:
Initial measurement, 1/1/23 4,240,976
Less: Depreciation, 2023 (4,240,976/7) 605,854
Carrying amount, 12/31/23 3,635,122
Less: Depreciation, 2024 605,854
Carrying amount, 12/31/24 3,029,268

3. BISHOP Company
Lease Liab./
PV Factor of PV Factor Cash Flows ROU Asset
Annuity due for 5 periods at 7% 4.387211 P1,500,000 6,580,817

Lease Interest Amorti- Carrying

Date Payments Expense zation Amount
Jan. 1, 2023 6,580,817
Jan. 1, 2023 1,500,000 - (1,500,000) 5,080,817
Jan. 1, 2024 1,500,000 355,657 (1,144,343) 3,936,474
Jan. 1, 2025 1,500,000 275,553 (1,224,447) 2,712,027

Lease Liability: 2023 2024

Carrying amount, 1/1 5,080,817 3,936,474
Accretion of interest 355,657 275,553
Carrying amount, 12/31 5,436,474 4,212,027

ROU Asset:
Lease liability 6,580,817
Add: Initial direct costs 100,000
Initial measurement, 1/1/23 6,680,817
Less: Depreciation, 2023 (6,680,817/5) 1,336,163
Carrying amount, 12/31/23 5,344,654
Less: Depreciation, 2024 1,336,163
Carrying amount, 12/31/24 4,008,491
 Right-of-use asset 6,680,817
January 1, Cash 100,000
2023
Lease liability 6,580,817

January 1, Security deposit 700,000

2023 Cash 700,000

Lease liability 1,500,000

January 1, Other expenses 300,000
2023
Cash 1,800,000

December Interest expense 355,657

31, 2023 Lease liability 355,657

December Depreciation expense 1,336,163

31, 2023 Right-of-use asset 1,336,163

Lease liability 1,500,000

January 1,
Other expenses 300,000
2024
Cash 1,800,000

December Interest expense 275,553

31, 2024 Lease liability 275,553

December Depreciation expense 1,336,163

31, 2024 Right-of-use asset 1,336,163

4. DOVE Company

Lease Liab./
PV Factor of PV Factor Cash Flows ROU Asset
Annuity due for 4 periods at 8% 3.577097 P1,200,000 4,292,516

Lease Interest Amorti- Carrying

Date Payments Expense zation Amount
Jan. 1, 2023 4,292,516
Jan. 1, 2023 1,200,000 - (1,200,000) 3,092,516
Jan. 1, 2024 1,200,000 247,401 (952,599) 2,139,917
Jan. 1, 2025 1,200,000 171,193 (1,028,807) 1,111,110

Lease Liability: 2023 2024

Carrying amount, 1/1 3,092,516 2,139,917
Accretion of interest 247,401 171,193
Carrying amount, 12/31 3,339,917 2,311,110
 ROU Asset:
Initial measurement, 1/1/23 4,292,516
Less: Depreciation, 2023 (4,292,516/4) 1,073,129
Carrying amount, 12/31/23 3,219,387
Less: Depreciation, 2024 1,073,129
Carrying amount, 12/31/24 2,416,258

January 1, Right-of-use asset 4,292,516

2023 Lease liability 4,292,516

January 1, Lease liability 1,200,000

2023 Cash 1,200,000

December Interest expense 247,401

31, 2023 Lease liability 247,401

December Depreciation expense 1,073,129

31, 2023 Right-of-use asset 1,073,129

December Rent expense 600,000

31, 2023 Rent payable 600,000

January 1, Lease liability 1,200,000

2024 Cash 1,200,000

February 1, Rent payable 600,000

2024 Cash 600,000

December Interest expense 171,193

31, 2024 Lease liability 171,193

December Depreciation expense 1,073,129

31, 2024 Right-of-use asset 1,073,129

December Rent expense 750,000

31, 2024 Rent payable 750,000
 5. FLATBILL Company
Lease Liab./
PV Factor of PV Factor Cash Flows ROU Asset
Ordinary annuity for 5 periods at 9% 3.889651 600,000 2,333,791

Lease liability:
Lease Interest Amorti- Carrying
Date Payments Expense zation Amount
Jan. 1, 2023 2,333,791
Dec. 31, 2023 600,000 210,014 (389,959) 1,943,832
Dec. 31, 2024 600,000 174,945 (425,055) 1,518,777

ROU Asset:
Initial measurement, 1/1/23 2,333,791
Less: Depreciation, 2023 (2,333,791/5) 466,758
Carrying amount, 12/31/23 1,867,033
Less: Depreciation, 2024 466,758
Carrying amount, 12/31/24 1,400,275

January 1, Right-of-use asset 2,333,791

2023 Lease liability 2,333,791

December Interest expense 210,014

31, 2023 Lease liability 210,014

December Depreciation expense 466,758

31, 2023 Right-of-use asset 466,758

Rent expense 200,000

December Lease liability 600,000
31, 2023
Cash (10M x 8%) 800,000

December Interest expense 174,945

31, 2024 Lease liability 174,945

December Depreciation expense 466,758

31, 2024 Right-of-use asset 466,758

Rent expense 360,000

December Lease liability 600,000
31, 2024
Cash (12M x 8%) 960,000
 6. BABBLER Company
Lease Liab./
PV Factor of PV Factor Cash Flows ROU Asset
Single payment for 5 periods at 10% 0.620921 800,000 496,737
Annuity due for 5 periods at 10% 4.169865 1,200,000 5,003,838
5,500,575

Lease Interest Amorti- Carrying

Date Payments Expense zation Amount
Jan. 1, 2023 5,500,575
Jan. 1, 2023 1,200,000 - (1,200,000) 4,300,575
Jan. 1, 2024 1,200,000 430,058 (769,942) 3,530,633
Jan. 1, 2025 1,200,000 353,063 (846,937) 2,683,696

Lease Liability: 2023 2024

Carrying amount, 1/1 4,300,575 3,530,633
Accretion of interest 430,058 353,063
Carrying amount, 12/31 4,730,633 3,883,696

ROU Asset:
Initial measurement, 1/1/23 5,500,575
Less: Depreciation, 2023 (5,500,575/5) 1,100,115
Carrying amount, 12/31/23 4,400,460
Less: Depreciation, 2024 1,100,115
Carrying amount, 12/31/24 3,300,345
January 1, Right-of-use asset 5,500,575
2023 Lease liability 5,500,575

January 1, Security deposit 300,000

2023 Cash 300,000

January 1, Lease liability 1,200,000

2023 Cash 1,200,000

December Interest expense 430,058

31, 2023 Lease liability 430,058

December Depreciation expense 1,100,115

31, 2023 Right-of-use asset 1,100,115

January 1, Lease liability 1,200,000

2024 Cash 1,200,000

December Interest expense 353,063

31, 2024 Lease liability 353,063
December Depreciation expense 1,100,115
31, 2024 Right-of-use asset 1,100,115

7. CRIMSON Company
Lease Liab./
PV Factor of PV Factor Cash Flows ROU Asset
Single payment for 6 periods at 6% 0.704961 400,000 281,984
Annuity due for 6 periods at 6% 5.212364 1,000,000 5,212,364
5,494,348

Lease Interest Amorti- Carrying

Date Payments Expense zation Amount
Jan. 1, 2023 5,494,348
Jan. 1, 2023 1,000,000 - (1,000,000) 4,494,348
Jan. 1, 2024 1,000,000 269,661 (730,339) 3,764,009
Jan. 1, 2025 1,000,000 225,841 (774,159) 2,989,850

Lease Liability: 2023 2024

Carrying amount, 1/1 4,494,348 3,764,009
Accretion of interest 269,661 225,841
Carrying amount, 12/31 4,764,009 3,989,850

ROU Asset:
Initial measurement, 1/1/23 5,494,348
Less: Depreciation, 2023 (5,494,348/6) 915,725
Carrying amount, 12/31/23 4,578,623
Less: Depreciation, 2024 915,725
Carrying amount, 12/31/24 3,662,898

January 1, Right-of-use asset 5,494,348

2023 Lease liability 5,494,348

January 1, Lease liability 1,000,000

2023 Cash 1,000,000

December Interest expense 269,661

31, 2023 Lease liability 269,661

December Depreciation expense 915,725

31, 2023 Right-of-use asset 915,725

January 1, Lease liability 1,000,000

2024 Cash 1,000,000
December Interest expense 225,841
31, 2024 Lease liability 225,841

December Depreciation expense 915,725

31, 2024 Right-of-use asset 915,725

8. MADDER Company

Lease Liab./
PV Factor of PV Factor Cash Flows ROU Asset
Single payment for 7 periods at 7% 0.622750 500,000 311,375
Annuity due for 7 periods at 7% 5.766540 1,400,000 8,073,156
8,384,531

Lease Interest Amorti- Carrying

Date Payments Expense zation Amount
Jan. 1, 2023 8,384,531
Jan. 1, 2023 1,400,000 - (1,400,000) 6,984,531
Jan. 1, 2024 1,400,000 488,917 (911,083) 6,073,448
Jan. 1, 2025 1,400,000 425,141 (974,859) 5,098,590

Lease Liability: 2023 2024

Carrying amount, 1/1 6,984,531 6,073,448
Accretion of interest 488,917 425,141
Carrying amount, 12/31 7,473,448 6,498,589

ROU Asset:
Initial measurement, 1/1/23 8,384,531
Less: Depreciation, 2023 [(8,384,531 – 200,000)/10] 818,453
Carrying amount, 12/31/23 7,566,077
Less: Depreciation, 2024 818,453
Carrying amount, 12/31/24 6,747,624

January 1, Right-of-use asset 8,384,531

2023 Lease liability 8,384,531

January 1, Lease liability 1,400,000

2023 Cash 1,400,000

December Interest expense 488,917

31, 2023 Lease liability 488,917

December Depreciation expense 818,453

31, 2023 Right-of-use asset 818,453
 January 1, Lease liability 1,400,000
2024 Cash 1,400,000

December Interest expense 425,141

31, 2024 Lease liability 425,141

December Depreciation expense 818,453

31, 2024 Right-of-use asset 818,453

9. MADDER Company (Part 2)

Lease Liab./
PV Factor of PV Factor Cash Flows ROU Asset
Annuity due for 7 periods at 7% 5.766540 1,400,000 8,073,156

Lease Interest Amorti- Carrying

Date Payments Expense zation Amount
Jan. 1, 2023 8,073,156
Jan. 1, 2023 1,400,000 - (1,400,000) 6,673,156
Jan. 1, 2024 1,400,000 467,121 (932,879) 5,740,277
Jan. 1, 2025 1,400,000 401,819 (998,181) 4,742,096

Lease Liability: 2023 2024

Carrying amount, 1/1 6,673,156 5,740,277
Accretion of interest 467,121 401,819
Carrying amount, 12/31 7,140,277 6,142,096

ROU Asset:
Initial measurement, 1/1/23 8,073,156
Less: Depreciation, 2023 [(8,073,156)/7] 1,153,308
Carrying amount, 12/31/23 6,919,848
Less: Depreciation, 2024 1,153,308
Carrying amount, 12/31/24 5,766,540

January 1, Right-of-use asset 8,073,156

2023 Lease liability 8,073,156

January 1, Lease liability 1,400,000

2023 Cash 1,400,000

December Interest expense 467,121

31, 2023 Lease liability 467,121
 December Depreciation expense 1,153,308
31, 2023 Right-of-use asset 1,153,308

January 1, Lease liability 1,400,000

2024 Cash 1,400,000

December Interest expense 401,819

31, 2024 Lease liability 401,819

December Depreciation expense 1,153,308

31, 2024 Right-of-use asset 1,153,308

10. SALMON Company

Lease Liab./
PV Factor of PV Factor Cash Flows ROU Asset
Annuity due for 5 periods at 6% 4.465106 1,500,000 6,697,659

Lease Interest Amorti- Carrying

Date Payments Expense zation Amount
Jan. 1, 2023 6,697,659
Jan. 1, 2023 1,500,000 - (1,500,000) 5,197,659
Jan. 1, 2024 1,500,000 311,860 (1,188,140) 4,009,519
Jan. 1, 2025 1,500,000 240,571 (1,259,429) 2,750,090
Lease Liability: 2023 2024
Carrying amount, 1/1 5,197,65 4,009,519
9
Accretion of interest 311,860 240,571
Carrying amount, 12/31 5,509,519 4,250,090
ROU Asset:
Initial measurement, 1/1/23 6,697,659
Less: Depreciation, 2023 [(6,697,659)/5] 1,339,532
Carrying amount, 12/31/23 5,358,127
Less: Depreciation, 2024 1,339,532
Carrying amount, 12/31/24 4,018,595
January 1, Right-of-use asset 6,697,659
2023 Lease liability 6,697,659

January 1, Lease liability 1,500,000

2023 Cash 1,500,000

December Interest expense 311,860

31, 2023 Lease liability 311,860
 December Depreciation expense 1,339,532
31, 2023 Right-of-use asset 1,339,532

January 1, Lease liability 1,500,000

2024 Cash 1,500,000

December Interest expense 240,571

31, 2024 Lease liability 240,571

December Depreciation expense 1,339,532

31, 2024 Right-of-use asset 1,339,532

11. EXTROVERT Company

Scenario a: Extension option is reasonably certain to be exercised

Lease Liab./
PV Factor of PV Factor Cash Flows ROU Asset
Ordinary annuity for 10 periods at 8% 6.710081 900,000 6,039,073

Scenario b: Extension option is NOT reasonably certain to be exercised

Lease Liab./
PV Factor of PV Factor Cash Flows ROU Asset
Ordinary annuity for 6 periods at 8% 4.622880 900,000 4,160,592

12. INTROVERT Company

Scenario a: Termination option is NOT reasonably certain to be exercised

Lease Liab./
PV Factor of PV Factor Cash Flows ROU Asset
Annuity due for 10 periods at 6% 7.801692 400,000 3,120,677

Scenario b: Termination option is reasonably certain to be exercised

Lease Liab./
PV Factor of PV Factor Cash Flows ROU Asset
Single payment for 5 periods at 6% 0.747258 1,000,000 747,258
Annuity due for 5 periods at 6% 4.212364 400,000 1,684,946
2,432,204
 13. CARDINAL Company (lease of low-value assets)

2023 (200 x 16K) 3,200,000

2024 (200 x 11K) 2,200,000
2025 (200 x 9K) 1,800,000
7,200,000
Divide: Lease term 3 years
Annual rental expense 2,400,000

Rent expense 2,400,000

2023 Prepaid rent 800,000
Cash 3,200,000

Rent expense 2,400,000

2024 Prepaid rent 200,000
Cash 2,200,000

Rent expense 2,400,000

2025 Prepaid rent 600,000
Cash 1,800,000

14. CARMINE Company

2023 (30 x 9K) 270,000

2024 (270K x 1.09) 294,300
2025 (294,300 x 1.09) 320,787
885,087
Divide: Lease term 3 years
Annual rental expense 295,029

Rent expense 295,029

2023 Accrued rent payable 25,029
Cash 270,000

Rent expense 295,029

2024 Accrued rent payable 729
Cash 294,300

Rent expense 295,029

2025 Accrued rent payable 25,758
Cash 320,787
 15. ACUPUNCTURE Company

PV Factor of PV Factor Cash Flows Lease Liab.

Single payment for 1 period at 8% 0.925926 800,000 740,741
Single payment for 2 periods at 8% 0.857339 840,000 720,165
Single payment for 3 periods at 8% 0.793832 882,000 700,160
Single payment for 4 periods at 8% 0.735030 926,100 680,711
Initial lease liability 2,841,777
Add: Initial direct costs 250,000
Initial ROU asset 3,091,777

16. DRAGON Company

Scenario 1: Semi-annual lease payments

PV Factor of PV Factor Cash Flows Lease Liab.

Annuity due for 6 periods at 5% 5.329477 500,000 2,664,739
Initial direct costs 150,000
Initial ROU asset 2,814,739

Scenario 2: Quarterly lease payments

PV Factor of PV Factor Cash Flows Lease Liab.

Annuity due for 12 periods at 2.50% 10.257765 250,000 2,564,441
Initial direct costs 150,000
Initial ROU asset 2,714,441
CHAPTER 9A – LESSEE ACCOUNTING – OTHER MATTERS
Straight Problems
1. LION Company

January 1, 2023 Lease Liab./

PV Factor of PV Factor Cash Flows ROU Asset
Annuity due for 5 periods at 9% 4.239720 1,400,000 5,935,608

Lease Interest Amorti- Carrying

Date Payments Expense zation Amount
Jan. 1, 2023 5,935,608
Jan. 1, 2023 1,400,000 - (1,400,000) 4,535,608
Jan. 1, 2024 1,400,000 408,205 (991,795) 3,543,813
Jan. 1, 2025 1,400,000 318,943 (1,081,057) 2,462,756

January 1, 2025 Lease Liab./

PV Factor of PV Factor Cash Flows ROU Asset
Ordinary annuity for 7 periods at 10% 4.868419 1,400,000 6,815,787
Carrying amount before reassessment 2,462,756
Increase in lease liability and ROU asset 4,353,031

January 1, ROU asset 4,353,031

2025 Lease liability 4,353,031

ROU Asset:
Initial measurement, 1/1/23 5,935,608
Less: Depreciation, 2023 [(5,935,608)/5] 1,187,122
Carrying amount, 12/31/23 4,748,486
Less: Depreciation, 2024 1,187,122
Carrying amount, 12/31/24 3,561,364
Add: Increase in lease liability and ROU asset 4,353,031
Carrying amount, 1/1/25 7,914,395
Less: Deprecation, 2025 (7,914,395/8) 989,299
Carrying amount, 12/31/25 6,925,096

Lease liability Carrying Amount

Jan. 1, 2025 6,815,787
Add: Interest expense (6,815,787 x 10%) 681,579
December 31, 2025 7,497,366
 2. CHEETAH Company

January 1, 2023 Lease Liab./

PV Factor of PV Factor Cash Flows ROU Asset
Annuity due for 10 periods at 8% 7.246888 1,200,000 8,696,266

Lease Interest Amorti- Carrying

Date Payments Expense zation Amount
Jan. 1, 2023 8,696,266
Jan. 1, 2023 1,200,000 - (1,200,000) 7,496,266
Jan. 1, 2024 1,200,000 599,701 (600,299) 6,895,967
Jan. 1, 2025 1,200,000 551,677 (648,323) 6,247,644
Jan. 1, 2026 1,200,000 499,812 (700,188) 5,547,456

January 1, 2026 Lease Liab./

PV Factor of PV Factor Cash Flows ROU Asset
Ordinary annuity for 2 periods at 9% 1.759111 1,200,000 2,110,933
Carrying amount before reassessment 5,547,456
Decrease in lease liability and ROU asset 3,436,523

January 1, Lease liability 3,436,523

2026 ROU asset 3,436,523

ROU Asset:
Initial measurement, 1/1/23 8,696,266
Less: Depreciation, 2023 – 2025 [(8,696,266) x 3/10] 2,608,880
Carrying amount, 12/31/25 6,087,386
Less: Decrease in lease liability and ROU asset 3,436,523
Carrying amount, 1/1/26 2,650,863
Less: Deprecation, 2026 (2,650,863/3) 883,621
Carrying amount, 12/31/26 1,767,242

Lease liability Carrying Amount

Jan. 1, 2026 2,110,933
Add: Interest expense (2,110,933 x 9%) 189,984
December 31, 2026 2,300,917
 3. ELEPHANT Company

January 1, 2023 Lease Liab./

PV Factor of PV Factor Cash Flows ROU Asset
Annuity due for 7 periods at 6% 5.917324 1,000,000 5,917,324

Lease Interest Amorti- Carrying

Date Payments Expense zation Amount
Jan. 1, 2023 5,917,324
Jan. 1, 2023 1,000,000 - (1,000,000) 4,917,324
Jan. 1, 2024 1,000,000 295,039 (704,961) 4,212,363
Jan. 1, 2025 1,000,000 252,742 (747,258) 3,465,105
Jan. 1, 2026 1,000,000 207,906 (792,094) 2,673,012

January 1, 2026
PV Factor of PV Factor Cash Flows Lease Liab.
Single payment for 4 periods at 7% 0.762895 2,000,000 1,525,790
Ordinary annuity for 3 periods at 7% 2.624316 1,000,000 2,624,316
Lease liability after reassessment 4,150,106
Carrying amount before reassessment 2,673,012
Increase in lease liability and ROU asset 1,477,094

January 1, ROU asset 1,477,094

2026 Lease liability 1,477,094

ROU Asset:
Initial measurement, 1/1/23 5,917,324
Less: Depreciation, 2023 – 2025 [(5,917,324) x 3/7] 2,535,996
Carrying amount, 12/31/25 3,381,328
Add: Increase in lease liability and ROU asset 1,477,094
Carrying amount, 1/1/26 4,858,422
Less: Deprecation, 2026 (2,650,863 – 1,200,000/9) 161,207
Carrying amount, 12/31/26 4,697,215

Lease liability Carrying Amount

Jan. 1, 2026 4,150,106
Add: Interest expense (4,150,106 x 7%) 290,507
December 31, 2026 4,440,613
 4. GIRAFFE Company

January 1, 2023 Lease Liab./

PV Factor of PV Factor Cash Flows ROU Asset
Single payment for 6 periods at 8% 0.630170 1,000,000 630,170
Annuity due for 6 periods at 8% 4.992710 1,500,000 7,489,065
8,119,235

Lease Interest Amorti- Carrying

Date Payments Expense zation Amount
Jan. 1, 2023 8,119,235
Jan. 1, 2023 1,500,000 - (1,500,000) 6,619,235
Jan. 1, 2024 1,500,000 529,539 (970,461) 5,648,774
Jan. 1, 2025 1,500,000 451,902 (1,048,098) 4,600,676

January 1, 2025
PV Factor of PV Factor Cash Flows Lease Liab.
Ordinary annuity for 3 periods at 7% 2.624316 1,500,000 3,936,474
Carrying amount before reassessment 4,600,676
Decrease in lease liability and ROU asset 664,202

January 1, Lease liability 664,202

2025 ROU asset 664,202

ROU Asset:
Initial measurement, 1/1/23 8,119,235
Less: Depreciation, 2023 – 2024 [(8,119,235 – 600,000) x 2/10] 1,503,847
Carrying amount, 12/31/24 6,615,388
Less: Decrease in lease liability and ROU asset 664,202
Carrying amount, 1/1/25 5,951,186
Less: Depreciation, 2025 (5,951,186/4) 1,487,797
Carrying amount, 12/31/25 4,463,389

Lease liability Carrying Amount

Jan. 1, 2025 3,936,474
Add: Interest expense (3,936,474 x 7%) 275,553
December 31, 2025 4,212,027
 5. BUFFALO Company

January 1, 2023 Lease Liab./

PV Factor of PV Factor Cash Flows ROU Asset
Single payment for 8 periods at 7% 0.582009 600,000 349,205
Annuity due for 8 periods at 7% 6.389289 1,400,000 8,945,005
9,294,210

Lease Interest Amorti- Carrying

Date Payments Expense zation Amount
Jan. 1, 2023 9,294,210
Jan. 1, 2023 1,400,000 - (1,400,000) 7,894,210
Jan. 1, 2024 1,400,000 552,595 (847,405) 7,046,805
Jan. 1, 2025 1,400,000 493,276 (906,724) 6,140,081
Jan. 1, 2026 1,400,000 429,806 (970,194) 5,169,887

January 1, 2026
PV Factor of PV Factor Cash Flows Lease Liab.
Single payment for 5 periods at 7% 0.712986 200,000 142,597
Ordinary annuity for 4 periods at 7% 3.387211 1,400,000 4,742,095
Lease liability after reassessment 4,884,692
Lease liability before reassessment 5,169,887
Decrease in lease liability and ROU asset 285,195

January 1, Lease liability 285,195

2026 ROU asset 285,195

ROU Asset:
Initial measurement, 1/1/23 9,294,210
Less: Depreciation, 2023 – 2025 [(9,294,210) x 3/8] 3,485,329
Carrying amount, 12/31/25 5,808,881
Less: Decrease in lease liability and ROU asset 285,195
Carrying amount, 1/1/26 5,523,686
Less: Depreciation, 2026 (5,523,686/5) 1,104,737
Carrying amount, 12/31/26 4,418,949

Lease liability Carrying Amount

Jan. 1, 2026 4,884,692
Add: Interest expense (4,884,692 x 7%) 341,928
December 31, 2026 5,226,620
 6. BUFFALO Company (Part 2)

January 1, 2026
PV Factor of PV Factor Cash Flows Lease Liab.
Single payment for 5 periods at 7% 0.712986 900,000 641,687
Ordinary annuity for 4 periods at 7% 3.387211 1,400,000 4,742,095
Lease liability after reassessment 5,383,782
Lease liability before reassessment 5,169,887
Increase in lease liability and ROU asset 213,895

January 1, ROU asset 213,895

2026 Lease liability 213,895

ROU Asset:
Initial measurement, 1/1/23 9,294,210
Less: Depreciation, 2023 – 2025 [(9,294,210) x 3/8] 3,485,329
Carrying amount, 12/31/25 5,808,881
Add: Increase in lease liability and ROU asset 213,895
Carrying amount, 1/1/26 6,022,776
Less: Depreciation, 2026 (6,022,776/5) 1,204,555
Carrying amount, 12/31/26 4,818,221

Lease liability Carrying Amount

Jan. 1, 2026 5,383,782
Add: Interest expense (5,383,782 x 7%) 376,865
December 31, 2026 5,760,647

7. HIPPO Company

January 1, 2023 Lease Liab./

PV Factor of PV Factor Cash Flows ROU Asset
Annuity due for 6 periods at 9% 4.889651 1,800,000 8,801,372

Lease Interest Amorti- Carrying

Date Payments Expense zation Amount
Jan. 1, 2023 8,801,372
Jan. 1, 2023 1,800,000 - (1,800,000) 7,001,372
Jan. 1, 2024 1,800,000 630,123 (1,169,877) 5,831,495
Jan. 1, 2025 1,800,000 524,835 (1,275,165) 4,556,330

January 1, 2025
PV Factor of PV Factor Cash Flows Lease Liab.
Ordinary annuity for 3 periods at 9% 2.531295 2,700,000 6,834,497
Lease liability before reassessment 4,556,330
Increase in lease liability and ROU asset 2,278,167
 January 1, ROU asset 2,278,167
2025 Lease liability 2,278,167

ROU Asset:
Initial measurement, 1/1/23 8,801,372
Less: Depreciation, 2023 – 2024 [(8,801,372) x 2/6] 2,933,791
Carrying amount, 12/31/24 5,867,581
Add: Increase in lease liability and ROU asset 2,278,167
Carrying amount, 1/1/25 8,145,748
Less: Depreciation, 2025 (8,145,748/4) 2,036,437
Carrying amount, 12/31/25 6,109,311

Lease liability Carrying Amount

Jan. 1, 2025 6,834,497
Add: Interest expense (6,834,497 x 9%) 615,105
December 31, 2025 7,449,602

8. LEOPARD Company

Original lease agreement:

January 1, 2023 Lease Liab./

PV Factor of PV Factor Cash Flows ROU Asset
Annuity due for 6 periods at 8% 4.992710 2,400,000 11,982,504

Lease liability (original)

Lease Interest Amorti- Carrying
Date Payments Expense zation Amount
Jan. 1, 2023 11,982,504
Jan. 1, 2023 2,400,000 - (2,400,000) 9,582,504
Jan. 1, 2024 2,400,000 766,600 (1,633,400) 7,949,104
Jan. 1, 2025 2,400,000 635,928 (1,764,072) 6,185,032
Jan. 1, 2026 2,400,000 494,803 (1,905,197) 4,279,835

ROU Asset (original):

Initial measurement, 1/1/23 11,982,504
Less: Depreciation, 2023 – 2024 [(11,982,504) x 2/6] 3,994,168
Carrying amount, 12/31/24 7,988,336

Scenario 1: (Considered as a separate lease (i.e., original lease is not affected))

January 1, 2025 Lease Liab./

PV Factor of PV Factor Cash Flows ROU Asset
Annuity due for 4 periods at 7% 3.624316 1,600,000 5,798,906
 January 1, ROU asset 5,798,906
2025 Lease liability 5,798,906

Lease liability (additional space)

Lease Interest Amorti- Carrying
Date Payments Expense zation Amount
Jan. 1, 2025 5,798,906
Jan. 1, 2025 1,600,000 - (1,600,000) 4,198,906
Jan. 1, 2026 1,600,000 293,923 (1,306,077) 2,892,829

Original Additional
Lease liability Lease Lease
Jan. 1, 2025 6,185,032 4,198,906
Add: Interest expense 494,803 293,923
December 31, 2025 6,679,835 4,492,829

Original Additional
ROU Asset Lease Lease
Jan. 1, 2025 7,988,336 5,798,906
Less: Depreciation expense 1,997,084 1,449,727
December 31, 2025 5,991,252 4,349,179

Scenario 2: (NOT considered as a separate lease (i.e., original lease is affected))

January 1, 2025
PV Factor of PV Factor Cash Flows Lease Liab.
Ordinary annuity for 3 periods at 7% 2.624316 2,400,000 6,298,358
Annuity due for 4 periods at 7% 3.624316 1,000,000 3,624,316
Total lease liability after modification 9,922,674
Lease liability from the original lease, 1/1/25 6,185,032
Increase in lease liability 3,737,642

January 1, ROU asset 3,737,642

2025 Lease liability 3,737,642

Lease liability (original and additional space)

Lease Interest Amorti- Carrying
Date Payments Expense zation Amount
Jan. 1, 2025 9,922,674
Jan. 1, 2025 1,000,000 - (1,000,000) 8,922,674
Jan. 1, 2026 3,400,000 624,587 (2,775,413) 6,147,261

Lease liability (original and additional space) Carrying Amount

Jan. 1, 2025 8,922,674
 Add: Interest expense (8,922,674 x 7%) 624,587
December 31, 2025 9,547,261

ROU Asset (original and additional space):

Carrying amount, 12/31/24 7,988,336
Add: Increase in lease liability and ROU asset 3,737,642
Carrying amount, 1/1/25 11,725,978
Less: Depreciation, 2025 (11,725,978/4) 2,931,495
Carrying amount, 12/31/25 8,794,483

Scenario 3: (Considered as a separate lease (i.e., original lease is not affected))

January 1, 2025 Lease Liab./

PV Factor of PV Factor Cash Flows ROU Asset
Annuity due for 4 periods at 7% 3.624316 1,300,000 4,711,611

January 1, ROU asset 4,711,611

2025 Lease liability 4,711,611

Lease liability (additional space)

Lease Interest Amorti- Carrying
Date Payments Expense zation Amount
Jan. 1, 2025 4,711,611
Jan. 1, 2025 1,300,000 - (1,300,000) 3,411,611
Jan. 1, 2026 1,300,000 238,813 (1,061,187) 2,350,424

Original Additional
Lease liability Lease Lease
Jan. 1, 2025 6,185,032 3,411,611
Add: Interest expense 494,803 238,813
December 31, 2025 6,679,835 3,650,424

Original Additional
ROU Asset Lease Lease
Jan. 1, 2025 7,988,336 4,711,611
Less: Depreciation expense 1,997,084 1,177,903
December 31, 2025 5,991,252 3,533,708
 9. BABOON Company

January 1, 2023 Lease Liab./

PV Factor of PV Factor Cash Flows ROU Asset
Ordinary annuity for 6 periods at 6% 4.917324 1,800,000 8,851,183

Lease liability (before decrease in scope)

Lease Interest Amorti- Carrying
Date Payments Expense zation Amount
Jan. 1, 2023 8,851,183
Dec. 31, 2023 1,800,000 531,071 (1,268,929) 7,582,254
Dec. 31, 2024 1,800,000 454,935 (1,345,065) 6,237,189

ROU Asset (original):

Initial measurement, 1/1/23 8,851,183
Less: Depreciation, 2023 – 2024 [(8,851,183) x 2/6] 2,950,394
Carrying amount, 12/31/24 5,900,789

Lease liability (6,237,189 x 2K/5K) 2,494,876

January 1, ROU asset (5,900,789 x 2K/5K) 2,360,316
2025
Gain on lease modification – P/L 134,560

January 1, 2025 Revised

PV Factor of PV Factor Cash Flows Lease Liab.
Ordinary annuity for 4 periods at 7% 3.387211 1,100,000 3,725,932
Carrying after proportional reduction (6,237,189 – 2,494,876) 3,742,313
Further decrease in lease liability and ROU asset 16,381

January 1, Lease liability 16,381

2025 ROU asset 16,381

Lease Liability ROU Asset

Balances before modification, 1/1/25 P6,237,189 P5,900,789
Less: Proportional reduction (2,494,876) (2,360,316)
Balances after proportional reduction P3,742,313 P3,540,473
Less: Further decrease in lease liability (16,381) (16,381)
Balances after modification, 1/1/25 P3,725,932 P3,524,092
 10. HYENA Company
January 1, 2023 Lease Liab./
PV Factor of PV Factor Cash Flows ROU Asset
Annuity due for 5 periods at 6% 4.465106 800,000 3,572,085

Lease liability (original)

Lease Interest Amorti- Carrying
Date Payments Expense zation Amount
Jan. 1, 2023 3,572,085
Jan. 1, 2023 800,000 - (800,000) 2,772,085
Jan. 1, 2024 800,000 166,325 (633,675) 2,138,410
Jan. 1, 2025 800,000 128,305 (671,695) 1,466,715

January 1, 2025
PV Factor of PV Factor Cash Flows Lease Liab.
Ordinary annuity for 6 periods at 7% 4.766540 800,000 3,813,232
Carrying amount before modification 1,466,715
Increase in lease liability and ROU asset 2,346,517

January 1, ROU asset 2,346,517

2025 Lease liability 2,346,517

Lease liability (original)

Lease Interest Amorti- Carrying
Date Payments Expense zation Amount
Jan. 1, 2025 3,813,232
Jan. 1, 2026 800,000 266,926 (533,074) 3,280,158

Lease liability (modified) Carrying Amount

Jan. 1, 2025 3,813,232
Add: Interest expense (3,813,232 x 7%) 266,926
December 31, 2025 4,080,158

ROU Asset (modified):

Initial measurement, 1/1/23 3,572,085
Less: Depreciation, 2023 – 2024 [(3,572,085) x 2/5] 1,428,834
Carrying amount, 12/31/24 2,143,251
Add: Increase in ROU asset 2,346,517
Carrying amount, 1/1/25 4,489,768
Less: Depreciation, 2025 (4,489,768/7) 641,395
Carrying amount, 12/31/25 3,848,373
CHAPTER 10 – LESSOR ACCOUNTING – FINANCE LEASE
Straight Problems
1. Finance lease or operating lease
a. Finance lease – there is transfer of ownership at the end of the lease term.
b. Finance lease – lease term is at least 75% of the economic life (6yrs/8yrs = 75%)
c. Operating lease – no transfer of ownership; lease term is below 75% of the
economic life (6yrs/12yrs = 50%)
d. Finance lease – Bargain purchase option of the lessee.
e. Finance lease – lease term is at least 75% of the economic life (7yrs/9yrs = 78%)
f. Finance lease – because of the following:

PV Factor of PV Factor Cash Flows PV

Annuity due for 4 periods at 7% 3.624316 1,000,000 3,624,316
Divide: FV of underlying asset 1,466,715
% of PV of cash flows over FV of underlying asset 90.61%

g. Finance lease – lease term is at least 75% of the economic life (6yrs/8yrs =
75%), even though the PV of lease payments is below 90% of the FV of the
underlying asset.
h. Operating lease

2. INDIGO Company

PV Factor of PV Factor Cash Flows PV

Annuity due for 6 periods at 8% 4.992710 1,400,000 6,989,794
Lease receivable (1.4M x 6) 8,400,000
Unearned finance income 1,410,206

Gross Unearned
Lease Interest Net Investment/ Finance
Date Pmts. Income Amort. Investment Lease Rec. Inc.
Jan. 1, 2023 6,989,794 8,400,000 1,410,206
Jan. 1, 2023 1.4M - (1,400,000) 5,589,794 7,000,000 1,410,206
Jan. 1, 2024 1.4M 447,184 (952,816) 4,636,978 5,600,000 963,022
Jan. 1, 2025 1.4M 370,958 (1,029,042) 3,607,936 4,200,000 592,064

Lease receivable 8,400,000

January 1,
Machinery for lease 6,989,794
2023
Unearned finance income 1,410,206

January 1, Cash 1,400,000

2023 Lease receivable 1,400,000

December Unearned finance income 447,184

31, 2023 Interest income 447,184
 January 1, Cash 1,400,000
2024 Lease receivable 1,400,000

December Unearned finance income 370,958

31, 2024 Interest income 370,958

Net investment: 2023 2024

Gross investment, 12/31 7,000,000 5,600,000
Less: Unearned finance income 963,022 592,064
Net investment, 12/31 6,036,978 5,007,936

3. SPRUCE Financing Company

PV Factor of PV Factor Cash Flows PV

Single payment for 5 periods at 6% 0.747258 1,500,000 1,120,887
Ordinary annuity for 5 periods at 6% 4.212364 1,800,000 7,582,255
Net investment in the lease 8,703,142
Lease receivable (1.8M x 5) + 1.5M 10,500,000
Unearned finance income 1,796,858

Gross Unearned
Lease Interest Net Investment/ Finance
Date Pmts. Income Amort. Investment Lease Rec. Inc.
Jan. 1, 2023 8,703,142 10.5M 1,796,858
Dec. 31, 2023 1.8M 522,189 (1,277,811) 7,425,331 8.7M 1,274,669
Dec. 31, 2024 1.8M 445,520 (1,354,480) 6,070,851 6.9M 829,149

Lease receivable 10,500,000

January 1, Vehicle for lease 8,703,142
2023
Unearned finance income 1,796,858

December Cash 1,800,000

31, 2023 Lease receivable 1,800,000

December Unearned finance income 522,189

31, 2023 Interest income 522,189

December Cash 1,800,000

31, 2024 Lease receivable 1,800,000

December Unearned finance income 445,520

31, 2024 Interest income 445,520
 4. LARA Company

PV Factor of PV Factor Cash Flows PV

Single payment for 5 periods at 7% 0.712986 1,000,000 712,986
Annuity due for 5 periods at 7% 4.387211 2,200,000 9,651,864
Net investment in the lease (Lower than 11.2M FV) 10,364,850
Lease receivable (2.2M x 5) + 1M 12,000,000
Unearned finance income 1,635,150

Gross Unearned
Lease Interest Net Investment/ Finance
Date Pmts. Income Amort. Investment Lease Rec. Inc.
Jan. 1, 2023 10,364,850 12,000,000 1,635,150
Jan. 1, 2023 2.2M - (2,200,000) 8,164,850 9,800,000 1,635,150
Jan. 1, 2024 2.2M 571,540 (1,628,460) 6,536,390 7,600,000 1,063,610
Jan. 1, 2025 2.2M 457,547 (1,742,453) 4,793,937 5,400,000 606,063

Lease receivable 12,000,000

January 1, Sales revenue 10,364,850
2023
Unearned finance income 1,635,150

January 1, Cost of goods sold 7,000,000

2023 Inventory 7,000,000

January 1, Cash 2,200,000

2023 Lease receivable 2,200,000

December Unearned finance income 571,540

31, 2023 Interest income 571,540

January 1, Cash 2,200,000

2024 Lease receivable 2,200,000

December Unearned finance income 457,547

31, 2024 Interest income 457,547

Net investment: 2023 2024

Gross investment, 12/31 9,800,000 7,600,000
Less: Unearned finance income 1,063,610 606,063
Net investment, 12/31 8,736,390 6,993,937
 5. DENIM Company

Assumption 1: Residual value is guaranteed

PV Factor of PV Factor Cash Flows PV

Single payment for 6 periods at 9% 0.596267 800,000 477,014
Ordinary annuity for 6 periods at 9% 4.485919 1,200,000 5,383,103
Net investment in the lease 5,860,117
Lease receivable (1.2M x 6) + 800K 8,000,000
Unearned finance income 2,139,883

Gross Unearned
Lease Interest Net Investment/ Finance
Date Pmts. Income Amort. Investment Lease Rec. Inc.
Jan. 1, 2023 5,860,117 8M 2,139,883
Dec. 31, 2023 1.2M 527,411 (672,589) 5,187,528 6.8M 1,612,472
Dec. 31, 2024 1.2M 466,877 (733,123) 4,454,405 5.6M 1,145,595

Lease receivable 8,000,000

Cost of goods sold 4,200,000
January 1, Sales revenue 5,860,117
2023
Unearned finance income 2,139,883
Inventory 4,200,000

December Cash 1,200,000

31, 2023 Lease receivable 1,200,000

December Unearned finance income 527,411

31, 2023 Interest income 527,411

January 1, Cash 1,200,000

2024 Lease receivable 1,200,000

December Unearned finance income 466,877

31, 2024 Interest income 466,877
Assumption 2: Residual value is NOT guaranteed

PV Factor of PV Factor Cash Flows PV

Single payment for 6 periods at 9% 0.596267 800,000 477,014
Ordinary annuity for 6 periods at 9% 4.485919 1,200,000 5,383,103
Net investment in the lease 5,860,117
Lease receivable (1.2M x 6) + 800K 8,000,000
Unearned finance income 2,139,883

Gross Unearned
Lease Interest Net Investment/ Finance
Date Pmts. Income Amort. Investment Lease Rec. Inc.
Jan. 1, 2023 5,860,117 8M 2,139,883
Dec. 31, 2023 1.2M 527,411 (672,589) 5,187,528 6.8M 1,612,472
Dec. 31, 2024 1.2M 466,877 (733,123) 4,454,405 5.6M 1,145,595

Lease receivable 8,000,000

Cost of goods sold (4.2M – 477,014) 3,722,986
January 1, Sales revenue (5,860,117 – 477,014) 5,383,103
2023
Unearned finance income 2,139,883
Inventory 4,200,000

December Cash 1,200,000

31, 2023 Lease receivable 1,200,000

December Unearned finance income 527,411

31, 2023 Interest income 527,411

January 1, Cash 1,200,000

2024 Lease receivable 1,200,000

December Unearned finance income 466,877

31, 2024 Interest income 466,877
 6. SLATE Company

Scenario 1
PV Factor of PV Factor Cash Flows Total PV
Ordinary annuity for 5 periods at 6% 4.212364 1,400,000 5,897,310
PV of lease payments discounted using market rate 5,897,310
Fair value of the underlying asset 5,740,276
Amount to be recognized as revenue (lower) 5,740,276

Scenario 2
PV Factor of PV Factor Cash Flows Total PV
Ordinary annuity for 5 periods at 8% 3.992710 1,400,000 5,589,794
PV of lease payments discounted using market rate 5,589,794
Fair value of the underlying asset 5,740,276
Amount to be recognized as revenue (lower) 5,589,794

7. COBALT Company

Asset for lease 1,800,000

Scenario 1 Cash 200,000
Lease receivable 2,000,000

Asset for lease 950,000

Scenario 2 Cash 1,050,000
Lease receivable 2,000,000

Asset for lease 1,700,000

Scenario 3 Loss on residual value 300,000
Lease receivable 2,000,000

Asset for lease 850,000

Scenario 4 Loss on residual value 1,150,000
Lease receivable 2,000,000
CHAPTER 10A – LESSOR ACCOUNTING – OPERATING LEASE AND OTHER MATTERS
Straight Problems
1. EMERALD Company

Cash 600,000
December
Rent income 550,000
31, 2023
Other income 50,000

December Depreciation expense (8M/15) 533,333

31, 2023 Accumulated depreciation – building 533,333

2. SHAMROCK Company

2023 2,000,000
2024 2,200,000
2025 2,420,000
2026 2,662,000
Total lease payments 9,282,000
Divide: Lease term 4 years
Annual rental income 2,320,500

January 1, Cash 2,000,000

2023 Unearned rent income 2,000,000

Unearned rent income 2,000,000

December Accrued rent receivable 320,500
31, 2023
Rent income 2,320,500

January 1, Cash 2,200,000

2024 Unearned rent income 2,200,000

Unearned rent income 2,200,000

December Accrued rent receivable 120,500
31, 2024
Rent income 2,320,500

January 1, Cash 2,420,000

2025 Unearned rent income 2,420,000

Unearned rent income 2,420,000

December Accrued rent receivable 99,500
31, 2025
Rent income 2,320,500
January 1, Cash 2,662,000
2026 Unearned rent income 2,662,000

Unearned rent income 2,662,000

December Accrued rent receivable 341,500
31, 2026
Rent income 2,320,500

3. PARAKEET Company

2023 2,000,000
2024 1,800,000
2025 1,600,000
2026 1,400,000
2027 1,200,000
Total lease payments 8,000,000
Divide: Lease term 5 years
Annual rental income 1,600,000

Cash 2,000,000
December Unearned rent income 400,000
31, 2023
Rent income 1,600,000

Cash 1,800,000
December Unearned rent income 200,000
31, 2024
Rent income 1,600,000

December Cash 1,600,000

31, 2025 Rent income 1,600,000

4. OLIVE Company

2023 450,000
2024 450,000
2025 450,000
2026 900,000
2027 900,000
2028 900,000
2029 900,000
2030 900,000
Total lease payments 5,850,000
Divide: Lease term 8 years
Annual rental income 731,250
 Cash 450,000
December Accrued rent receivable 281,250
31, 2023
Rent income 731,250

Cash 450,000
December Accrued rent receivable 281,250
31, 2024
Rent income 731,250

Cash 450,000
December Accrued rent receivable 281,250
31, 2025
Rent income 731,250

Cash 900,000
December Accrued rent receivable 168,750
31, 2026
Rent income 731,250

5. MOSS Company (Correction: Ignore the information about MOSS Company’s

payment of P180,000 initial direct costs)

2023 1,000,000
2024 1,000,000
2025 1,080,000
2026 1,166,400
Total lease payments 4,246,400
Divide: Lease term 4 years
Annual rental income 1,061,600

Cash 1,075,000
January 1,
Unearned other income 75,000
2023
Unearned rent income 1,000,000

January 1, Capitalized initial direct costs 240,000

2023 Cash 240,000

January 1, Security deposit 600,000

2023 Cash 600,000

Unearned rent income 1,000,000

December Accrued rent receivable 61,600
31, 2023
Rent income 1,061,600

December Unearned other income 75,000

31, 2023 Other income 75,000
December Amortization expense – initial direct cost 60,000
31, 2023 Capitalized initial direct costs 60,000

December Depreciation expense 800,000

31, 2023 Accumulated depreciation – machinery 800,000

December Cash (20M x 3%) 600,000

31, 2023 Rent income 600,000

Cash 1,075,000
January 1,
Unearned other income 75,000
2024
Unearned rent income 1,000,000

Unearned rent income 1,000,000

December
Accrued rent receivable 61,600
31, 2024
Rent income 1,061,600

December Unearned other income 75,000

31, 2024 Other income 75,000

December Amortization expense – initial direct cost 60,000

31, 2024 Capitalized initial direct costs 60,000

December Depreciation expense 800,000

31, 2024 Accumulated depreciation – machinery 800,000

December Cash (18M x 3%) 540,000

31, 2024 Rent income 540,000

2022 2023 2024

Beg. Carrying Amt. P7,200,000 P6,800,000 P6,180,000
Add: Initial direct
costs (IDC) – 240,000 –
Less: Depreciation (400,000) (800,000) (800,000)
Amortization of IDC
– (60,000) (60,000)
End. Carrying Amt. P6,800,000 P6,180,000 P5,320,000
 6. VILLA Company

Allocation to P7,800,000
= P1,565,120 x = P939,072
Lease of Building P5.2M + P7.8M

Allocation to P5,200,000
= P1,565,120 x = P626,048
Lease of Land P5.2M + P7.8M

PV Factor of PV Factor Cash Flows Total PV

Annuity due for 8 periods at 7% 6.389289 939,072 6,000,000

Gross Unearned
Lease Interest Net Investment/ Finance
Date Pmts. Income Amort. Investment Lease Rec. Inc.
Jan. 1, 2023 6,000,000 7,512,576 1,512,576
Jan. 1, 2023 939,072 - (939,072) 5,060,928 6,573,504 1,512,576
Jan. 1, 2024 939,072 354,265 (584,807) 4,476,121 5,634,432 1,158,311
Jan. 1, 2025 939,072 313,328 (625,744) 3,850,377 4,695,360 844,983

Land 4,000,000
January 1, Building 6,000,000
2023
Cash 10,000,000

Lease receivable 7,512,576

January 1, Building 6,000,000
2023
Unearned finance income 1,512,576

Cash 1,565,120
January 1, Rent income 626,048
2023
Lease receivable 939,072

December Unearned finance income 354,265

31, 2023 Interest income 354,265

Cash 1,565,120
January 1,
Rent income 626,048
2023
Lease receivable 939,072

December Unearned finance income 313,328

31, 2023 Interest income 313,328
 7. PICKLE Company

PV Factor of PV Factor Cash Flows Total PV

Single payment for 7 periods at 6% 0.665057 800,000 532,046
Ordinary annuity for 7 periods at 6% 5.582381 600,000 3,349,429
Net investment in the lease 3,881,475
Lease receivable (600K x 7) + 800K 5,000,000
Unearned finance income 1,118,525

Gross Unearned
Lease Interest Net Investment/ Finance
Date Pmts. Income Amort. Investment Lease Rec. Inc.
Jan. 1, 2023 3,881,475 5,000,000 1,118,525
Dec. 31, 2023 600,000 232,888 (367,112) 3,514,363 4,400,000 885,637
Dec. 31, 2024 600,000 210,862 (389,138) 3,125,225 3,800,000 674,775

Unearned finance income 674,775

December Vehicle 3,125,225
31, 2024
Lease receivable 3,800,000

8. FOREST Company

2023 1,200,000
2024 1,400,000
2025 1,600,000
2026 1,800,000
2027 2,000,000
Total lease payments 8,000,000
Divide: Lease term 5 years
Annual rental income 1,600,000

Total rent income, 2023 – 2025 (1.6M x 3) 4,800,000

Total rent received (1.2M + 1.4M + 1.6M) 4,200,000
Accrued rent receivable, 12/31/25 600,000

Total revised lease payments (P1,600,000 x 3) P4,800,000

Less: Balance of accrued rental income 600,000
Net revised lease payments P4,200,000
Divided by: Remaining lease term 3 years
Revised periodic rental income P1,400,000
12/31/2026 12/31/2027 12/31/2028
Accrued rent receivable 400,000 200,000 -
 9. SACRAMENTO and UNIFORM
SACRAMENTO Financing Company books (the lessor):
PV Factor of PV Factor Cash Flows Total PV
Single payment for 5 periods at 6% 0.747258 500,000 373,629
Annuity due for 5 periods at 6% 4.465106 1,000,000 4,465,106
Net investment in the lease 4,838,735
Lease receivable (1M x 5) + 500K 5,500,000
Unearned finance income 661,265

Lease receivable 5,500,000

January 1, Vehicle 4,838,735
2023
Unearned finance income 661,265

January 1, Cash 1,000,000

2023 Lease receivable 1,000,000

December Unearned finance income 230,324

31, 2023 Interest income 230,324

UNIFORM Company (lessee)

Lease Liab./
PV Factor of PV Factor Cash Flows ROU Asset
Annuity due for 5 periods at 6.5% 4.425799 1,000,000 4,425,799

January 1, ROU asset 4,425,799

2023 Lease liability 4,425,799

January 1, Lease liability 1,000,000

2023 Cash 1,000,000

December Interest expense 222,677

31, 2023 Lease liability 222,677

December Depreciation expense 885,160

31, 2023 ROU asset 885,160
 10. CANARY and DAFFODIL

CANARY Company (lessor)

2023 1,000,000
2024 900,000
2025 800,000
2026 700,000
2027 600,000
Total lease payments 4,000,000
Divide: Lease term 5 years
Annual rental income 800,000

Cash 1,000,000
December Unearned rent income 200,000
31, 2023
Rent income 800,000

DAFFODIL Company (lessee)

Lease Liab./
PV Factor of PV Factor Cash Flows ROU Asset
Single payment for 1 period at 9% 0.917431 1,000,000 917,431
Single payment for 2 periods at 9% 0.841680 900,000 757,512
Single payment for 3 periods at 9% 0.772183 800,000 617,746
Single payment for 4 periods at 9% 0.708425 700,000 495,898
Single payment for 5 periods at 9% 0.649931 600,000 389,959
3,178,546

January 1, ROU asset 3,178,546

2023 Lease liability 3,178,546

December Lease liability 1,000,000

31, 2023 Cash 1,000,000

December Interest expense 286,069

31, 2023 Lease liability 286,069

December Depreciation expense 635,709

31, 2023 ROU asset 635,709
CHAPTER 11 – SUBLEASE, AND SALE AND LEASEBACK
Straight Problems
1. GRANOLA Company

Head Lease (1/1/23) Lease Liab./

PV Factor of PV Factor Cash Flows ROU Asset
Annuity due for 10 periods at 8% 7.246888 P1,400,000 10,145,643

Sublease (net invest.) (1/1/23) Net

PV Factor of PV Factor Cash Flows investment
Annuity due for 10 periods at 8% 7.246888 P1,600,000 11,595,021
Net investment in the lease (1.6M x 10) 16,000,000
Unearned finance income 4,404,979

Note: Sublease is considered as a finance lease.

January 1, ROU asset 10,145,643

2023 Lease liability 10,145,643

Lease receivable (1.6M x 10) 16,000,000

January 1, ROU asset 10,145,643
2023 Unearned finance income 4,404,979
Gain on sublease – P/L 1,449,378

January 1, Lease liability 1,400,000

2023 Cash 1,400,000

January 1, Cash 1,600,000

2023 Lease receivable 1,600,000

December Interest expense 699,651

31, 2023 Lease liability (10,145,643 – 1.4M) x 8% 699,651

December Unearned finance income 799,602

31, 2023 Interest income (11,595,021 – 1.6M) x 8% 799,602

Net amount in profit or loss = 1,449,378 +799,602 – 699,651 = 1,549,329 net income
 2. BUMBLEBEE Company

Head Lease (1/1/23) Lease Liab./

PV Factor of PV Factor Cash Flows ROU Asset
Annuity due for 5 periods at 7% 4.387211 P700,000 3,071,048

Sublease (net invest.) (1/1/24) Net

PV Factor of PV Factor Cash Flows investment
Annuity due for 4 periods at 7% 3.624316 P900,000 P3,261,884
Net investment in the lease (900K x 4) 3,600,000
Unearned finance income 338,116

Note: Sublease is considered as a finance lease.

January 1, Lease liability 700,000

2024 Cash 700,000

Lease receivable (900K x 4) 3,600,000

January 1, ROU asset (3,071,048 x 4/5) 2,456,838
2024 Unearned finance income 338,116
Gain on sublease – P/L 805,046

January 1, Cash 900,000

2024 Lease receivable 900,000

December Interest expense 128,591

31, 2023 Lease liability 128,591

December Unearned finance income 165,332

31, 2023 Interest income 165,332

Net amount in profit or loss = 805,046 + 165,332 – 128,591 = 841,787 net income

3. ORANGE and AMBER

Scenario 1
ORANGE Company

PV Factor of PV Factor Cash Flows Lease Liab

Annuity due for 4 periods at 5% 3.723248 P1,000,000 P3,723,248

P3,723,248
 P5,500,000
ROU Asset = P4,800,000 x = P3,249,380

Recognized P5,500,000 – P3,723,248

= P700,000 x = P226,132
Gain on Sale P5,500,000

Cash 5,500,000
Right-of-use asset 3,249,380
Lease liability 3,723,248
Land 4,800,000
Gain on sale and leaseback (sque eze) 226,132

AMBER Company

Land 5,500,000
Cash 5,500,000

Scenario 2
ORANGE Company

PV Factor of PV Factor Cash Flows PV

Annuity due for 4 periods at 5% 3.723248 P1,000,000 P3,723,248
Excess of selling price over fair value 500,000
Initial lease liability P3,223,248

P3,223,248
ROU Asset = P4,800,000 x P5,500,000 = P2,813,016

Recognized P5,500,000 – P3,223,248

= P700,000 x = P289,768
Gain on Sale P5,500,000

Cash 6,000,000
Right-of-use asset 2,813,016
Lease liability 3,223,248
Loan payable 500,000
Land 4,800,000
Gain on sale and leaseback (sque eze) 289,768

AMBER Company

Land 5,500,000
Loan receivable 500,000
Cash 6,000,000

Scenario 3
ORANGE Company

PV Factor of PV Factor Cash Flows PV

Annuity due for 4 periods at 5% 3.723248 P1,000,000 P3,723,248
Excess of fair value over selling price 300,000
Lease liability to be used in ROU asset and gain on sale P4,023,248

P4,023,248
ROU Asset = P4,800,000 x = P3,511,198
P5,500,000
 Recognized P5,500,000 – P4,023,248
= P700,000 x = P187,950
Gain on Sale P5,500,000

Cash 5,200,000
Right-of-use asset 3,511,198
Lease liability 3,723,248
Land 4,800,000
Gain on sale and leaseback (sque eze) 187,950

AMBER Company

Land 5,500,000
Cash 5,200,000
Unearned income 300,000

4. BRONZE and APRICOT

Scenario 1
BRONZE Company

PV Factor of PV Factor Cash Flows Lease Liab

Annuity due for 5 periods at 7% 4.387211 P900,000 P3,948,490

P3,948,490
ROU Asset = 10,000,000 x = P4,935,612
P8,000,000

Recognized P8,000,000 – P3,948,490

= 2,000,000 x = P1,012,878
Loss on Sale P8,000,000

Cash 8,000,000
Right-of-use asset 4,935,612
Loss on sale and leaseback (squeeze) 1,012,878
Lease liability 3,948,490
Building, net 10,000,000

APRICOT Company

Building 8,000,000
Cash 8,000,000
Scenario 2
BRONZE Company

PV Factor of PV Factor Cash Flows Lease Liab

Annuity due for 5 periods at 7% 4.387211 P900,000 P3,948,490
Excess of selling price over fair value 1,000,000
Initial lease liability P2,948,490

P2,948,490
ROU Asset = 10,000,000 x = P3,685,613
P8,000,000

Recognized P8,000,000 – P2,948,490

= 2,000,000 x = P1,262,878
Loss on Sale P8,000,000

Cash 9,000,000
Right-of-use asset 3,685,613
Loss on sale and leaseback (squeeze) 1,262,877
Lease liability 2,948,490
Loan payable 1,000,000
Building, net 10,000,000

APRICOT Company

Building 8,000,000
Loan receivable 1,000,000
Cash 9,000,000
Scenario 3
BRONZE Company

PV Factor of PV Factor Cash Flows Lease Liab

Annuity due for 5 periods at 7% 4.387211 P900,000 P3,948,490
Excess of fair value over selling price 500,000
Lease liability to be used in ROU asset and gain on sale P4,448,490

P4,448,490
ROU Asset = 10,000,000 x = P5,560,613
P8,000,000

Recognized P8,000,000 – P4,448,490

= 2,000,000 x = P887,878
Loss on Sale P8,000,000

Cash 7,500,000
Right-of-use asset 5,560,613
Loss on sale and leaseback (squeeze) 887,877
Lease liability 3,948,490
Building, net 10,000,000

APRICOT Company

Building 8,000,000
Cash 7,500,000
Unearned rent income 500,000