Lease Review PDF

Preview

Summary

Answer Sheet on Google FormQUIZ: Leases Part 1 Customer X enters into a five-year contract with Supplier Y for the use of a rolling stock specifically designed for Customer X. The rolling stock is designed to transport materials used in Customer X’s production process and is not suitable for use by ...

Description

Answer Sheet on Google Form QUIZ: Leases Part 1 1. Customer X enters into a five-year contract with Supplier Y for the use of a rolling stock specifically designed for Customer X. The rolling stock is designed to transport materials used in Customer X’s production process and is not suitable for use by other customers. The rolling stock is not explicitly specified in the contract, but Supplier Y owns only one rolling stock that is suitable for Customer X’s use. If the rolling stock does not operate properly, the contract requires Supplier

Y to repair or replace the rolling stock. Supplier Y does not have a substantive

substitution right. Is the rolling stock an identified asset? a. Yes, because the rolling stock is implicitly specified in the contract. b. Yes, because the contract extends beyond 12 months. c. No, because the rolling stock is not explicitly specified in the contract. d. No, because I don’t know what a rolling stock is. 2. Security deposits, which are refundable to the lessee upon lease termination, a. are treated as prepaid rent by lessees and as unearned income by lessors. b. are never discounted. c. are treated as receivable by lessees and as payable by lessors. d. are discounted only by lessees but not by lessors 3. On December 30, 20x5, Haber Co. leased a new machine from Gregg Corp. The following data relate to the lease transaction at the inception of the lease: Lease term 10 years Annual rental payable at the end of each lease year ₱100,000 Useful life of machine 12 years Implicit interest rate 10% The lease has no renewal option, and the possession of the machine reverts to Gregg when the lease terminates. At the inception of the lease, Haber should record a lease liability of (rounded-off) a. 0 c. 630,000 b. 615,000 d. 676,000 4. On January 1, 20x7, Babson, Inc., leased two automobiles for executive use. The lease requires Babson to make five annual payments of ₱13,000 beginning January 1, 20x7. Babson expects to pay ₱10,000 on the residual value guarantee. The interest rate implicit in the lease is 9%. Babson's recorded lease liability on initial recognition is a. 48,620 c. 35,620 b. 44,070 d. 31,070 5. On January 1, 20x1, Row Co. leased a machine from Boat, Inc. Information on the lease is as

follows: Annual rent payable at the beginning of each year ₱200,000 Lease term 10 years Useful life of machine 12 years Implicit interest rate 10% The lease contract provides Row Co. an option to purchase the machine at the end of the lease term for ₱100,000. The option price approximates the machine’s expected fair value at the end of the lease. Row Co. is reasonably certain to the exercise the option. What amount of interest expense should

Row Co. recognize on the lease in 20x1? a. 139,036 b. 135,181 c. 119,036 d. 115,181 6. On January 1, 20x1, Lock Co. enters into a 4-year lease of office equipment. The rent in 20x1 is ₱10,000 and this will increase by 10% annually starting on January 1, 20x2. Lock Co. pays the lessor a lease bonus of ₱5,000 on January 1, 20x1. Lock Co. opts to use the practical expedient allowed under PFRS 16 for leases of low value assets. How much is the lease expense in 20x1? a. 10,000 c. 11,603 b. 11,000 d. 12,853 7. On January 1, 20x6, Day Corp. entered into a 10-year lease agreement with Ward, Inc. for a piece of industrial equipment. Annual lease payments of ₱10,000 are payable at the end of each year. Day knows that the lessor expects a 10% return on the lease. Day has a 12% incremental borrowing rate. The equipment is expected to have an estimated useful life of 10 years. In addition, a third party, unrelated to Day, has guaranteed to pay Ward a residual value of ₱5,000 at the end of the lease. In Day's January 1, 20x6 balance sheet, the principal amount of the lease obligation was a. 63,374 c. 58,112 b. 61,446 d. 56,502 8. On January 1, 20x1, Fingerstyle Co. (lessee) enters into a ten-year lease of equipment, with fixed annual payments of ₱200,000 due at the start of each lease year. The contract itemizes the fixed annual payments as follows: ₱156,000 for rent, ₱39,000 for maintenance and ₱5,000 of administrative tasks. The itemized amounts reflect the relative stand-alone prices of the components. The lessor's implicit interest rate in the lease, known to Fingerstyle Co., is 10%. How much are the (1) lease liability as of January 1, 20x1 and (2) total lease-related expenses for 20x1? a. 1,080,366; 236,074 c. 921,444; 240,289 b. 1,080,366; 241,074 d. 921,444; 245,289 9. Use the information in the preceding problem. In addition, the contract requires Fingerstyle Co. to restore the equipment to its original condition at end of the lease term. At contract inception, Fingerstyle Co. estimates that the fair value of its restoration obligation is ₱100,000. How much are the (1) right-of-use asset and (2) lease liability as of January 1, 20x1?

a. 1,181,444; 921,444 c. 1,180,366; 1,080,366 b. 1,021,444; 921,444 d. 1,180,366; 1,180,366 10. On January 2, 20x9, Nori Mining Co. (lessee) entered into a 5-year lease for drilling equipment. Nori recognized a lease liability of ₱240,000 at the commencement date. This amount includes the ₱10,000 exercise price of a purchase option. At the end of the lease, Nori expects to exercise the purchase option. Nori estimates that the equipment's fair value will be ₱20,000 at the end of its 8- year life. Nori regularly uses straight-line depreciation on similar equipment. For the year ended December 31, 20x9, what amount should Nori recognize as depreciation expense on the leased asset? a. 48,000 c. 30,000 b. 46,000 d. 27,500 QUIZ: Leases Part 2 1. A lessor’s gross investment in a finance lease is computed as

a. lease payments plus unguaranteed residual value. b. present value of (a). c. difference between (a) and (b). d. sum of (a) and (b). 2. Which of the following statements is false regarding the accounting for leases? a. The lessor may not use the straight line basis for recognizing lease income under an operating lease if another systematic basis is more representative of the pattern in which benefit from the use of the underlying asset is diminished. b. The amount of lease income recognized each year under an operating lease is typically constant even though the contractual payments increase every year by a certain amount specified in the contract. c. It is possible that the lessor does not depreciate the leased asset even if the lease is classified as an operating lease. d. Under an operating lease, the lessor capitalizes initial direct costs. These costs will increase the lease income each year. 3. Security deposits that are refundable a. are treated as unearned income by lessors under an operating lease. b. are not discounted because they are normally of a short-term nature c. are treated as receivable by lessees and as payable by lessors. d. are discounted only by lessees but not by lessors

Use the following information for the next two questions: On January 1, 20x1, VACILLATE Financing Co. leased equipment to HESITATE, Inc. Information on the lease is shown below.

Cost of equipment ₱1,394,740 Useful life of equipment 5 years Lease term 4 years Annual rent payable at the start of each year ₱400,000 Interest rate implicit in the lease 10%

4. How much is the total interest income (finance income) to be recognized by VACILLATE over the lease term? a. 400,000 c. 205,260 b. 605,260 d. 365,260 5. How much is the carrying amount of the net investment in the lease as of December 31, 20x1? a. 694,215 c. 735,260 b. 1,094,215 d. 1,165,260 6. On January 1, 20x1, OFFICIOUS Financing Co. leased equipment to MEDDLESOME, Inc. under direct financing lease. Information on the lease is shown below: Cost of equipment ₱1,200,000 Useful life of equipment 5 years Lease term 4 years Annual rent payable at the end of each year ₱440,000 Non-lease component included in annual rent ₱36,196 Initial direct costs 80,000 Implicit rate of interest in the lease 10%

The non-lease component pertains to payment for supplies and other consumables relating to the operation of the equipment. The stand-alone selling prices are: ₱36,196 for the supplies and ₱403,804 for the rent. On January 1, 20x3, due to cash flow problems, OFFICIOUS agreed to sell the equipment to MEDDLESOME, Inc. for ₱600,000. How much is the gain (loss) on the sale? a. (100,816) c. 20,816 b. 100,816 d. 0 7. On January 1, 20x1, UPPITY Co. leased a piece of equipment to ARROGANT, Inc. Information on the lease is shown below. Cost of equipment ₱1,200,000 Useful life of equipment 5 years Lease term 4 years Annual rent payable at the end of each year ?

UPPITY Co. incurred direct costs of ₱80,000 in negotiating the lease. If UPPITY Co. desires a fair rate of return of 10%, what amount of annual rental should it charge ARROGANT, Inc.? a. 440,000 c. 340,000 b. 403,803 d. 200,000

Use the following information for the next two questions: On January 1, 20x1, POLTROON Co. leased a piece of equipment to COWARD, Inc. Information on the lease is as follows: Cost of equipment ₱1,200,000 Useful life of equipment 5 years Lease term 4 years Annual rent payable at the end of each year ₱400,000 Interest rate implicit in the lease 10% Residual value ₱80,000

The equipment will revert back to POLTROON at the end of the lease term. The lease is classified as sales type lease. 8. How much is the gross investment in the lease on January 1, 20x1 assuming the residual value is guaranteed? a. 1,600,000 c. 1,520,000 b. 1,680,000 d. 1,267,948 9. How much are the sales and cost of sales if the residual value is unguaranteed? Sales Cost of sales Sales Cost of sales a. 1,267,946 1,145,359 c. 1,322,587 1,200,000 b. 1,267,946 1,200,000 d. 1,322,587 1,145,359 10. On June 1, 20x0, Oren Co. entered into a five-year nonrenewable lease, commencing on that date, for office space and made the following payments to Cant Properties: Bonus to obtain lease 30,000 First month's rent 10,000 Last month's rent 10,000 In its income statement for the year ended June 30, 20x0, what amount should Cant report as rent income? a. 10,000 c. 40,000 b. 10,500 d. 0 QUIZ: SHE Part 1

1. If shares are issued below par or issued value, the deficiency of the consideration received is recorded as “discount on share capital .” The discount is presented in the statement of financial position a. under current assets as a receivable from the shareholder concerned. b. as a deduction in shareholders’ equity. c. as an addition in shareholders’ equity. d. a and b 2. Legal capital is the portion of contributed capital that cannot be distributed to the owners during the lifetime of the corporation unless the corporation is dissolved and all of its liabilities are settled first. For no-par value shares, legal capital is a. the aggregate par value of shares issued and subscribed. b. the total consideration received or receivable from shares issued or subscribed. c. the aggregate stated value of shares issued and subscribed. d. the aggregate market value of shares issued and subscribed.

3. How should the excess of the subscription price over the par value of ordinary subscribed be recorded? a. As share premium when the subscription is received. b. As share premium when the subscription is collected. c. As retained earnings when the subscription is received. d. As share premium when the capital stock is issued. 4. Share issuance costs are recognized directly in equity. If the related share premium is insufficient to offset any share issuance costs, the issuance costs are a. recognized as expense in profit or loss b. charged directly to retained earnings c. charged directly to share capital d. a or b 5. Zinc Co.'s adjusted trial balance at December 31, 20x1, includes the following account balances: Ordinary shares, ₱3 par ₱600,000 Share premium 800,000 Treasury stock, at cost 50,000 Accumulated other comprehensive income (Debit) 20,000 Retained earnings appropriated for uninsured earthquake losses 150,000 Retained earnings - unappropriated 200,000 What amount should Zinc report as total stockholders' equity in its December 31, 20x1, balance sheet? a. 1,680,000 b. 1,720,000 c. 1,780,000 d. 1,820,000 6. The stockholders' equity section of Peter Corporation's balance sheet at December 31, 20x2 was as follows: Ordinary shares (₱10 par, authorized 1M sh., issued and outst. 900K sh.) ₱ 9,000,000 Share premium 2,700,000 Retained earnings 1,300,000 On January 2, 20x3, Peter purchased and retired 100,000 shares of its stock for ₱1,800,000. Immediately after retirement of these 100,000 shares, the balances in the share premium and retained earnings accounts should be Share premium Retained earnings Share premium Retained earnings a. ₱ 900,000 ₱1,300,000 c. ₱1,900,000 ₱1,300,000 b. ₱1,400,000 ₱ 800,000 d. ₱2,400,000 ₱ 800,000 7. On April 1, 20x9, Hyde Corp., a newly formed company, had the following stock issued and outstanding: ∙ Ordinary shares, ₱1 par value, 20,000 shares originally issued for ₱30 per share. ∙ Preference shares, ₱10 par value, 6,000 shares originally issued for ₱50 per share.

Hyde’s April 1, 20x9, statement of shareholders’ equity should report Ordinary shares Preference

shares Share premium a. ₱20,000 ₱60,000 ₱820,000 b. ₱20,000 ₱300,000 ₱580,000 c. ₱600,000 ₱300,000 ₱0 d. ₱600,000 ₱60,000 ₱240,000 8. Asp Co. was organized on January 2, 20x1, with 30,000 authorized shares of ₱10 par ordinary shares. During 20x1 the corporation had the following capital transactions: Jan. 5 Issued 20,000 shares at ₱15 per share. July 14 Purchased 5,000 shares at ₱17 per share. Dec. 27 Reissued the 5,000 shares held in treasury at ₱20 per share.

Asp used the cost method to record the purchase and reissuance of the treasury shares. In its December 31, 20x1, balance sheet, what amount should Asp report as additional paid-in capital in excess of par? a. 100,000 b. 125,000 c. 140,000 d. 115,000 9. On March 1, 20x1, Rya Corp. issued 1,000 shares of its ₱20 par value ordinary shares and 2,000 shares of its ₱20 par value convertible preference shares for a total of ₱80,000. At this date, Rya’s ordinary share was selling for ₱36 per share, and the convertible preference share was selling for ₱27 per share. What amount of the proceeds should be allocated to Rya’s convertible preference share? a. 60,000 b. 54,000 c. 48,000 d. 44,000 10. In 20x1, Fogg, Inc., issued ₱10 par value ordinary share for ₱25 per share. No other share transactions occurred until March 31, 20x1, when Fogg acquired some of the issued shares for ₱20 per share and retired them. Which of the following statements correctly states an effect of this acquisition and retirement? a. 20x1 profit is decreased. c. Share premium is decreased. b. 20x1 profit is increased. d. Retained earnings is increased. QUIZ: SHE Part 2

1. The use of equity reserves under PFRSs a. is strictly voluntary on the part of the management of a company. b. is based on whether a reserve is part of distributable or non-distributable equity. c. is primarily for the benefit of shareholders rather than creditors. d. results in the elimination of the retained earnings category from the total equity of a company. 2. Which of the following is most likely to be true regarding the payment of dividends? a. Dividends may be paid from legal capital. b. Retained earnings are available for dividends unless restricted by contract or by statute.

c. Unrealized capital is available for any type of dividend. d. Capital from donated assets is available for dividends. 3. When a property dividend is declared and the carrying amount of the property exceeds its fair value, the dividend is recorded at the a. fair value of the property at the date of distribution. b. carrying amount of the property at the date of declaration. c. carrying amount of the property at the date of distribution if it still exceeds the fair value of the property at the date of declaration. d. fair value of the property at the date of declaration. 4. Selected information from the accounts of Row Co. at December 31, 20x1, follows: Total profit since incorporation ……….…………………….₱420,000 Total cash dividends paid ………………………….……….....130,000 Total value of property dividends distributed ………………..30,000 Excess of proceeds over cost of treasury stock sold, accounted for using the cost method …………..………….110,000 In its December 31, 20x1, financial statements, what amount should Row report as retained earnings? a. 260,000 b. 290,000 c. 370,000 d. 400,000

5. Nest Co. issued 100,000 shares of common stock. Of these, 5,000 were held as treasury stock at December 31, 20x1. During 20x2, transactions involving Nest's common stock were as follows: ∙ May 3 - 1,000 shares of treasury stock were sold. ∙ August 6 - 10,000 shares of previously unissued stock were sold. ∙ November 18 - a 2-for-1 stock split took effect. Laws in Nest's state of incorporation protect treasury stock from dilution. At December 31, 20x2, how many shares of Nest's common stock were issued and outstanding?

Shares Issued Outstanding Shares Issued Outstanding a. 220,000 212,000 c. 222,000 214,000 b. 220,000 216,000 d. 222,000 218,000 6. On June 27, 20x1, Brite Co. distributed to its ordinary shareholders 100,000 shares of Quik, Inc., an unrelated party, held as investment in held for trading securities. The carrying amount of the investment on June 27, 20x1 was ₱1 per share, while the fair value was ₱2 per share. On distribution date, the fair value of Quik’s stock was ₱2.50 per share. In its income statement for the year ended June 30, 20x1, what amount should Brite report as gain relating to the disposal of the stock? a. 250,000 b. 200,000 c. 50,000 d. 0

7. The Gradison Corporation had the following classes of shares outstanding as of December 31, 2002: ∙ Ordinary shares, ₱20 par value, 20,000 shares outstanding ∙ Preference shares, 6 percent, ₱100 par value, cumulative, 2,000 shares outstanding No dividends were paid on preference shares for 2000 and 2001. On December 31, 2002, a total cash dividend of ₱200,000 was declared. What amount of dividends is payable to the ordinary shareholders? a. 156,000 c. 176,000 b. 167,000 d. 184,000 8. Late Co. has the following shareholders’ equity: Share capital, ₱100 par, 10,000 shares 1,000,000 Share premium 200,000 Retained earnings 300,000 Total shareholders’ equity 1,500,000

Late Co. recalled the 10,000 outstanding shares and replaced them with 20,000 no-par shares with stated value of ₱5 per share. How much is the share premium after the recapitalization? a. 200,000 c. 1,100,000 b. 1,000,000 d. 0 9. During 2002, the following transactions related to the capital stock of the Buffet-Line Corp. occurred:

Jan. 7 Declared a ₱.75 cash dividend on 150,000 shares of preferred stock.Feb. 7 Paid dividends on preferred stock. March 4 Declared a ₱.50 cash dividend on 200,000 shares of common stock with a ₱20 par value. Mar. 18 Paid dividends on common stock. June 30 Split common stock 4-for-1. July 9 Purchased 12,000 shares of Buffet-Line's own common stock at ₱32 per share; acquisition recorded at cost. Sept. 10 Declared a cash dividend of ₱.40 per share on common stock outstanding. Sept. 18 Paid dividends on common stock. What total amount is debited to retained earnings for the transactions above? a. 432,300 c. 527,700 b. 498,700 d. 614,700 10. The stockholders' equity section of Brown Co.'s December 31, 20x1, balance sheet consisted of the following:

Ordinary shares, ₱30 par, 10,000 shares authorized and outstanding ₱300,000 Share premium 150,000 Retained earnings (deficit) (210,000) On January 2, 20x2, Brown put into effect a stockholder-approved quasi-reorganization by reducing the par value of the stock to ₱5 and eliminating the deficit against share premium. Immediately after the quasi-reorganization, what amount should Brown report as share premium? a. (60,000) c. 190,000 b. 150,000 d. 0...