Hope Manufacturing Company and Charity Co.. 2010 b Statement of Comprehensive Income: Hope Charity In profit or loss section Machine for lease, net of accum... b Date Total Annual
Trang 1LEASES PROBLEMS 4-1 (Hope Manufacturing Company and Charity Co.)
(a) Lessor’s Books (Hope Manufacturing Co.)
2012
2 M/5 = 400,000
2 M x 30% = 600,000
(2.2 M – 200,000)/10 200,000 60,000 / 5 years 12,000 Total 212,000
2013
2,000,000 x 20%
Lessee’s Books (Charity Co.)
2010
(b)
Statement of Comprehensive Income: Hope Charity (In profit or loss section)
Machine for lease, net of accum
Trang 24-2 (Blessed Realty)
a (7,500 x 4) + (10,000 x 3) + (12,000 x 3) + (15,000 x 2) 126,000
4-3 (Faith Company)
or
(b) Faith Company
2012
2013 9,000 x 4 = 36,000
Mar 1 - Dec 1 monthly entry
Rent expense for 2012:
540,000 x 12/60 108,000 Payments in 2012 100,000 Increase in rent payable 8,000
Love Corporation
2012
2013
Mar 1 - Dec 1 monthly entry
Trang 3Dec 31 Rent receivable 8,000
4-4 (Way Company)
Amortization of lease bonus (125,000/5 years) 25,000
Security deposit (discounted for 4 years at 10%)
4-5 (Truth Corporation)
Depreciation expense 3,500,000/6 = 583,333; 583,333 x 9/12 (437,500)
4-6 (Provident Company)
Lessor’s Books
2012
July 1 Equipment for lease 1,500,000
31 Rent revenue 49,500
Unearned rent revenue 49,500 54,000 x 33/36 = 49,500
31 Depreciation expense 75,000
Accumulated depreciation 75,000 (1,500,000 / 10) x 6/12
Trang 4Lessee’s Books
2012
Oct 1 Rent expense 54,000
1 Rent expense 30,000
Nov 1 Rent expense 30,000
Dec 1 Rent expense 30,000
31 Prepaid rent 49,500
4-7 (Generous, Inc.)
260,000 x 4.2397 1,102,322 200,000 x 0.6499 129,980 Total capitalized cost 1,232,302 (a) Amortization Table
Date Total Annual Payment Interest Expense Reduction in Principal Obligation Lease
01/01/12 260,000 - 260,000 972,302 01/01/13 260,000 87,507 172,493 799,809 01/01/14 260,000 71,983 188,017 611,792 01/01/15 260,000 55,061 204,939 406,853 01/01/16 260,000 36,617 223,383 183,470 12/31/16 200,000 16,530* 183,470 -
*Adjusted; difference is due to rounding off
(b)
2012
(1,232,302-200,000)/5
2013
Trang 5(c)
Dec 31 Accumulated depreciation 1,032,300
Interest expense 16,532*
Finance lease obligation 183,470 Leased automobile 1,232,302
*adjusted; balancing figure
(d)
Dec 31 Loss on finance lease 50,000
Accumulated depreciation 1,032,300 Interest expense 16,532 Finance lease obligation 183,470 Leased automobile 1,232,302
4-8 (Diana Corporation)
(b) Amortization Table
Date Total Annual Payment Interest Expense Reduction in Principal Obligation Lease
01/01/12 86,680 - 86,680 274,767 01/01/13 86,680 27,477 59,203 215,564 01/01/14 86,680 21,556 65,124 150,440 01/01/15 86,680 15,044 71,636 78,804 01/01/16 86,680 7,876* 78,804 -
*Adjusted; difference is due to rounding off
(c)
2012
1 Finance Lease Obligation 86,680
361,447/5 years
2013
Trang 6(d)
Property, plant and equipment
Current liabilities:
Noncurrent liabilities:
4-9 (Riza, Inc.)
(a) 1,011,840/135,000 = 7.4951 PV of an annuity due for 12 periods
From Table VI across 12 periods, 7.4951 is under 10% interest rate (b)
Date
Total Annual Payment
Interest Expense
Reduction in Principal
Lease Obligation
12/31/12 135,000 - 135,000 876,840 12/31/13 135,000 87,684 47,316 829,524 12/31/14 135,000 82,952 52,048 777,476
(d)
(1,011,840 – 40,000) / 15
4-10 (Shirley Corporation)
(a) 150,000 x 4.0373 605,595
240,000 x 0.5674 136,176 Total capitalized cost 741,771
Trang 7(b)
Date Total Annual Payment Expense Interest Reduction in Principal Obligation Lease
*Adjusted; difference is due to rounding off
(d)
2012
2013
(e)
(f)
Trang 84-11 (Sam Company)
(a) Present value of minimum lease payments
(c)
2010
July 1 Taxes and insurance expense 50,000
447,569 x 6/12
31 Depreciation expense-Building 221,487
31 Prepaid taxes and insurance 25,000
2011
417,277 x 6/12
Amortization Table
July 1, 2013 700,000 P447,569 252,431 3,477,309 July 1, 2014 700,000 417,277 282,723 3,194,586
Trang 94-12 (Joy Company)
a
2012
38,190 x 5/12
Partial Amortization Table
Date Payment Periodic Interest Reduction in Principal Balance of Principal
08/01/12 100,000 - 100,000 381,900 08/01/13 100,000 38,190 61,810 320,090
(b) As of December 31, 2012:
Total Current Non-current Finance lease receivable P505,000 P100,000 P405,000 Unearned interest revenue 107,188 22,278 84,910
P397,812 P 77,722 P320,090 Current portion:
Accrued interest, 12/31/12 (38,190 x 5/12) 15,912 4-13 (Jackie Chan and Chris Tucker)
Annual Lease Payment:
PV factor (Annuity due for 5 years at 10%) ÷4.1699
Date Payment Periodic Interest Reduction in Principal Balance of Principal
Jan 1, 2012 P137,932 P137,932 462,068 Jan 1, 2013 137,932 P46,207 91,725 370,343 Jan 1, 2014 137,932 37,034 100,898 269,445
Depreciable cost = P600,000 – P20,000 = P580,000
2012 Depreciation = P580,000 x 6/21 = P165,714
2013 Depreciation = P580,000 x 5/21 = 138,095
Trang 10(a) Books of Chris Tucker
2012
1 Finance lease obligation 137,932
31 Depreciation expense – Leased equipment 165,714
2013
Jan 1 Finance lease obligation 91,725
Dec 31 Interest expense 37,034
Depreciation expense 138,095
Accum depr.– Leased equipment 138,095 (b) Books of Jackie Chan
2012
Jan 1 Finance lease receivable 729,660
Dec 31 Unearned interest revenue 46,207
2013
Dec 31 Unearned interest revenue 37,034
4-14 (Ben Ten and Ironman)
(a) Direct finance lease
(The cash price equals the carrying value of the asset; hence, there is
no gross profit)
(b) The rate is approximately 8% The PV factor is P539,730/80,000 =
6.7466; in line 9 (which is 8 annual payments of P80,000 + 1 payment for guaranteed residual value of same amount), the corresponding interest rate is 8%
Trang 11
(c)
Partial amortization table
Date Payment Periodic Interest Reduction in Principal Balance of Principal
April 1, 2012 80,000 80,000 459,730 April 1, 2013 80,000 36,778 43,222 416,508 April 1, 2014 80,000 33,321 46,679 369,829
Ironman
2012
36,778 x 9/12
(539,730-80,000)/8 = 57,466 57,466 x 9/12 = 43,100
2013
Apr 1 Interest expense (36,778-27,584) 9,194
33,321 x 9/12
(539,730-80,000)/8 = 57,466
Trang 12(d) Books of Ben Ten
2012
80,000x 8 = 640,000;
640,000 + 80,000 GRV = 720,000
2011
32,893 x 9/12 (e) The asset shall be recorded at P496,512 which is 80,000 x 6.2064
Depreciation for 2012 = 496,512/8 x 9/12 = 46,548 (f) No difference in journal entries To the lessor, under the direct finance
lease, it does not matter whether the residual value is guaranteed or unguaranteed
4-15 (Prudent Company)
Total financial revenue over the lease term 608,160 (c) Interest revenue for 2012
(1,011,840 – 135,000) x 10% x 6/12 43,842
Net finance lease receivable, December 31, 2012 920,682
Trang 134-16 (Glad Manufacturing Company)
(a)
2012
175,000 x 8 = 1,400,000 1,400,000 + 100,000 = 1,500,000 940,000–(100,000 x0.4665)=893,350 175,000 x 5.8684 = 1,026,970
100,000 x 0.4665 = 46,650 1,026,970 + 46,650 = 1,073,620 1,500,000 – 1,073,620 = 426,380
89,862 x 9/12
2013
81,348 x 9/12
Partial amortization table
Date Payment Periodic Interest Reduction in Principal Balance of Principal
April 1, 2012 175,000 175,000 898,620 April 1, 2013 175,000 89,862 85,138 813,482 April 1, 2014 175,000 81,348 93,652 719,830
*The compound entry may also be presented as follows:
Trang 14(b) (i) Sales 1,026,970
Cost of Sales (940,000 – 46,650) 893,350
(ii) Interest Revenue for 2012 (see journal entries) 67,397
4-17 Ruby Company
a Manufacturer’s or dealer’s lease, because FV exceeds CV The
difference represents gross profit, which characterizes a dealer’s or manufacturer’s lease
b Present value of MLP = 850,365 x 4.6048 P3,914,080
Present value of residual value = 166,300 x 5066 84,248
Lease arrangement cost ( 85,000)
Interest income 377,756 x 3/12 94,439
Date
Periodic Payment Interest
Reduction in Principal
Balance of Principal
Oct 1, 2012 P850,365 P850,365 3,147,963 Oct 1, 2013 850,365 P377,756 472,609 2,675,354 Oct 1, 2014 850,365 321,042 529,323 2,146,031
2012
Oct 1 Finance lease receivable (850,365 x 6) + 166,300 5,268,490
Cost of goods sold (3,200,000 – 84,248) 3,115,752
Dec 31 Unearned interest revenue 94,439
2013
Dec 31 Unearned interest revenue 363,578
(377,756 – 94,439) + (321,042 x 3/12)
Trang 15d Amortization Table for Emerald
Date Payment Periodic Interest Reduction in Principal Balance of Principal
Oct 1, 2012 850,365 850,365 3,063,715 Oct 1, 2013 850,365 367,646 482,719 2,580,996 Oct 1, 2014 850,365 309,720 540,645 2,040,351
2012
367,646 x 3/12 = 91,912
3,914,080/6 x 3/12
2013
Interest expense 367,646 – 91,912 275,734
309,720 x 3/12
4-18 (Metro Industries)
Correction to the problem: the equipment’s fair value is P368,606, instead of P400,000
(a) Sales = (99,046 x 3.1699) + (80,000 x.6830) = P368,606
Interest income (368,606 x 10%) 36,861
(c) Depreciation expense recorded by Western
4-19 (Legend Company)
(a) Selling price of the machinery (150,000 x 4.0373) 605,595 (b) Deferred gain on January 1, 2012 (605,595 – 411,750) 193,845 (c) Depreciation expense for 2012 (605,595 / 5 years) 121,119 (d) Interest expense for 2012 (605,595 – 150,000) x 12% 54,671
Trang 164-20 (Honest Company)
(a)
(b)
31 Unearned profit on sale leaseback 5,000
(40,000/4) x 6/12 (c)
2012
Trang 17(d)
2012
Deferred loss on sale leaseback 100,000
Rent expense/Loss on sale leaseback 12,500
Deferred loss on sale leaseback 12,500 100,000 x 6/48 = 12,500
MULTIPLE CHOICE QUESTIONS Theory
Problems
MC25 C 900,000 + (500,000 / 5 yrs) = 1,000,000
MC26 C 40,000 + (125,000 x 4) = 540,000; 540,000 / 5 yrs = 108,000
MC27 D This is an operating lease; thus, there is no interest expense involved
MC28 D 240,000 x 6/12 = 120,000
MC29 C 3,600,000 / 3 yrs = 1,200,000
MC30 B 3,600,000 x 2/3 = 2,400,000; 600,000 + 900,000 = 1,500,000
2,400,000 – 1,500,000 = 900,000 MC31 B 500,000 x 4.61 = 2,305,000
MC32 D 2,305,000 – 500,000 – 283,400 = 1,521,600; 500,000 – (12% x
1,805,000)=283,400 MC33 A 2,305,000 / 6 = 384,167
MC34 B 1,350,000-200,000=1,150,000; 1,150,000 x 10% = 115,000
200,000-115,000 = 85,000 MC35 B 400,000 x 5.95 = 2,380,000
MC36 D (2,400,000 – 200,000) / 8 yrs = 275,000
MC37 D (1,742,174 x 3.48685) + (1,200,000 x 68301) = 6,894,311
MC38 C (6,894,311 – 1,200,000)/4 = 1,423,578
MC39 A 1,742,174 X 3.48685 = 6,074,699
MC40 D 6,074,699/4 = 1,518,675
MC41 CV = 6,245,450 – [(6,245,450 – 80,000)/6 X 4 ] = 2,135,150
2,135,150 – 1,250,000 = 885,150 MC42 A 100,000 x 6 = 600,000
Trang 18MC43 D 100,000 x 4.8 = 480,000; 480,000 – 100,000 = 380,000
380,000 x 10% x 5/12 = 15,833 MC44 C 3,520,000 – 2,800,000 = 720,000
MC45 A 3,520,000 – 600,000 = 2,920,000; 2,920,000 x 10% x 6/12 = 146,000
MC46 B 400,000 – 300,000 – 15,000 + (400,000 X 10%) = 125,000
MC47 D 400,000 – (108,951 – 40,000 interest) = 331,049
MC48 A 323,400 / 4.312 = 75,000; 75,000 x 5 = 375,000; 375,000 – 323,400 = 51,600 MC49 D 98,512 x 10% = 9,851; 30,000-9,851 =20,149; 98,512-20,149=78,363
78,363 x 10% = 7,836 MC50 C (98,512-5,000) / 4 = 23,378
MC51 D (30,000 x 2) + 5,000 = 65,000
MC52 A Initial direct costs increase the net investment in lease recorded by the lessor;
although an unguaranteed residual value is considered by the lessor and not by the lessee, the terms of the lease already indicated that the residual value is guaranteed
MC53 A This excess over the limited hours should be accrued by the end of 2013, even if
payment would be made at January 1, 2013 MC54 D 550,000 – 400,000 =150,000 ; in the absence of any information, sales price is
presumed to be at fair value
MC55 A 4,800,000 – 3,600,000 = 1,200,000
MC56 B 1,200,000 /12 x 6/12 = 50,000
MC57 B 150,000 – 100,000 = 50,000; 50,000 x 9/10 = 45,000
MC58 B 800,000 – 710,000 = 90,000 deferred on Mar 31; 710,000 – 650,000 = 60,000
immediate gain on Mar 31; 60,000 + [(90,000/12) x 9/12] = 65,625 MC59 D If selling price is at fair value, full amount of gain is recognized immediately MC60 B Additional information, lease term is 12 years out of total life of 25 years
Deferred loss = 650,000 – 470,000; amortized loss = (180,000/12) x 9/12 = 11,250; 470,000 – 11,250 = 168,750