26. What type of lease did the problem illustrate?

(a) operating
lease (c) both operating and capital leases (b) capital lease (d)
sale and leaseback D 27. Ace purchased a machine on January 1, 2002
for P1,440,000 for the purpose of leasing it. The machine is expected
to have an 8-year life from date of purchase, no residual value, and
be depreciated on the straight line basis. On February 1, 2002, the
machine was leased to Fox Company for a 3-year period ending January
31, 2005 at a monthly rental of P30,000. Additionally, Fox paid
P72,000 to Ace on February 1, 2002 as a lease bonus. Ace incurred
insurance and related costs of P12,000 under the lease. What is the
amount of income before income taxes that Ace should report on this
leased asset for the year ended December 31, 2002? (a) P172,000 (b)
P160,000 (c) P222,000 (d) 175,000 B 28. Heart Company leased a new
machine from Ash Company on December 31, 2002 under a lease with the
following pertinent information: Lease term 8 years Annual rental
payable at beginning of each lease year P500,000 Useful life of the
machine 10 years Present value of the 8 lease payments at 12/31/2002
P2,580,000 Machine reverts to Ash at lease expiration date The
machine has a fair value of P2,800,000 at the inception of the lease.
Heart uses the straight line method of depreciation. For the year
ended December 31, 2003, how much depreciation should Heart record
for the capitalized lease machine? (a) P350,000 (b) P322,500 (c)
P280,000 (d) P258,000 B Items 29 and 30: On January 1, 2000, Pride
Corporation sold an equipment with remaining life of 5 years. At the
same time, Pride leased back the equipment for 5 years. Other data
are: Cost of equipment P3,000,000 Accumulated depreciation 1,400,000
Sales price (present value of rentals, rounded) 1,900,000 Annual
rental payable at year-end 500,000 Interest rate implicit in the
lease 10% Present value of an annuity of 1 at 10% for 5 periods 3.791
Assume that the leaseback is a capital lease because Pride can
acquire the equipment at a nominal amount at the end of the lease
term. 29. How much is the deferred revenue on sale and leaseback? (a)
P 0 (b) P220,000 (c) P240,000 (d) P300,000 D 30. How much is the
depreciation expense? (a) P 0 (b) P190,000 (c) P260,000 (d) P380,000
D 31. K Inc. leases and operates a retail store. The following
information relates to the lease for the year ended December 31,
2002: a. The store lease, an operating lease, calls for a base
monthly rent of P1,500 on the first day of each month. b. Additional
rent is computed at 6% of net sales over P300,000 up to P600,000 and
5% of net sales over P600,000 per calendar year. c. Net sales for
2002 were P900,000. d. K paid executory costs to the lessor for
property taxes of P12,000 and insurance of P5,000. For 2002, K Inc.
expenses relating to the store lease are: (a) P71,000 (b) P68,000 (c)
P54,000 (d) P35,000 B 32. As an inducement to enter a lease, Arts,
Inc. a lessor, grants Hompson Corporation, a lessee, nine months of
free rent under a five year operating lease. The lease is effective
on July 1, 2002 and provides for monthly rental of P10,000 to begin
April 1, 2003. In Hompson’s income statement for the year ended June
30, 2003, rent expense should be reported as: (a) P102,000 (b)
P90,000 (c) P30,000 (d) P25,500 A