Lessor discussion about the CFAS of accounting PDF

Preview

Summary

Download Lessor discussion about the CFAS of accounting PDF

Description

LEASES – Lessor’s Perspective

Operating Lease 1.

On January 1, 2018, Lee Company leased a building to Brilliant Company under an operating lease for ten years at P500,000 per year, payable at the first day of each lease year. Lee paid P150,000 to a real estate broker as a finder fee. The building is depreciated P120,000 per year. Lee incurred insurance and property tax expense totaling P90,000 for the year. What is the net rental income for 2018? A. 275,000 B. 290,000 C. 350,000 D. 365,000

2.

Thunder Company purchased a tractor on January 1, 2018 at a cost of P1,600,000 for the purpose of leasing it. The tractor is estimated to have a useful life of 5 years with residual value of P100,000. Depreciation is on a straight line basis. On April 1, 2018, Thunder entered into a lease contract for the lease of the tractor for a term of two years up to March 31, 2020. The lessee paid P600,000, the lease fee for one year. Thunder paid P120,000 commission associated with negotiating the lease, P15,000 minor repairs and P10,000 transportation of the tractor to the lessee during the year. What amount of net rent revenue should be reported for the current year? A. 80,000 B. 85,000 C. 160,000 D. 235,000

3.

As an incentive to enter a non-cancelable operating lease for office premises for 10 years, Lomi Company as lessor has offered the lessee a rent-free period of two years. Annual rental payment under the lease commencing in the third year is P500,000. What amount of lease income should be recognized by Lomi in the first year? A. 0 B. 400,000 C. 450,000 D. 500,000

4.

Ralph Company leased office premises to Wreck Company for a five year term beginning January 1, 2018. Under the terms of the operating lease, rent for the first year is P800,000 and rent for years 2 through 5 is P1,250,000 per annum. However, as an inducement to enter the lease, Ralph granted Wreck the first six months of the lease rent-free. What amount should Ralph report as rental income for 2018? A. 800,000 B. 1,080,000 C. 1,160,000 D. 1,200,000

Use the following information to answer items 5 and 6: On January 1, 2020, Juris Company leased a building to Jay Company for a ten-year term at an annual rental of P1,000,000. At inception of the lease, Juris received P4,000,000 covering the first two years’ rent and a security deposit of P2,000,000. This deposit will not be returned to Jay upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. 5.

6.

What portion of the P4,000,000 should be reported as current liability on December 31, 2020? B. 1,000,000 C. 2,000,000 A. 0

D. 3,000,000

What portion of the P4,000,000 should be reported as non-current liability on December 31, 2020? A. 0 B. 2,000,000 C. 3,000,000 D. 4,000,000

Use the following information to answer items 7 and 8: On July 1, 2019, Herr Company leased a delivery truck from Bie Company under a 3-year operating lease. Total rent for the term of the lease will be P360,000 payable as follows: First 12 months @ P5,000 per month Next 12 months @ P7,500 per month Last 12 months @ P17,500 per month

60,000 90,000 210,000

All payments were made when due. 7.

8.

What is the rent revenue for the year ended June 30, 2020? A. 30,000 B. 50,000

C.

60,000

On June 30, 2021, what amount should be reported as accrued rent receivable? B. 90,000 C. 120,000 A. 0

D.

120,000

D.

210,000

Use the following information to answer items 9 and 10: Bae Company, lessor, leased an equipment under an operating lease. The lease term is 5 years and the lease payments are made in advance on January 1 of each year as shown in the following schedule: January January January January January Total 9.

1, 1, 1, 1, 1,

2018 2019 2020 2021 2022

1,000,000 1,000,000 1,400,000 1,700,000 1,900,000 7,000,000

What is the rent income for 2018? 1,000,000 B. 1,400,000 A.

C.

1,500,000

10. On December 31, 2021, what amount should be reported as accrued rent receivable? A. 0 B. 400,000 C. 500,000

D. 2,000,000

D.

700,000

Use the following information to answer items 11 to 13: On January 1, 2018, Ant-Man Company leased a machine to Wasp Company for a four-year period. The annual rentals will be paid by the lessee beginning December 31, 2018. The lease agreement called for a 10% increase in annual rental per annum. The rental due on December 31, 2021 was P266,200. 11. What is the rental payment due on December 31, 2019?

FARQ 220-1

Page 1 of 4

A.

181,818

B. 200,000

12. What is the rental income for the year ended 2020? A. 200,000 B. 220,000

C.

220,000

D.

242,000

C.

232,050

D.

242,000

D.

44,100

13. What amount shall be reported as accrued rent payable on December 31, 2019? A. 0 B. 32,050 C. 34,150

Finance Lease Direct Financing Lease

Use the following information to answer items 14 to 18: Stuart Company is in the business of leasing new sophisticated equipment. As a lessor, the entity expects a 12% return. At the end of the lease term, the equipment will revert to Stuart Company. On January 1, 2018, an equipment is leased to another entity under a direct financing lease. Cost of equipment to Stuart Residual value – unguaranteed Annual rental payable in advance Useful life and lease term Implicit interest rate First lease payment

5,500,000 400,000 959,500 8 years 12% January 1, 2018

Use two decimal places for PV factors. 14. What is the gross investment in the lease? B. 5,900,000 A. 5,500,000

C.

7,676,000

D. 8,076,000

15. What is the unearned interest income on January 1, 2018? A. 1,616,000 B. 1,776,000

C.

2,176,000

D. 2,576,000

16. What is the interest income for 2018? B. 496,860 A. 322,000

C.

544,860

D.

660,000

17. What is the carrying value of the lease receivable as of December 31, 2019? B. 4,125,860 C. 4,620,963 A. 3,661,463

D. 5,085,360

18. What is the interest income for 2021? A. 376,961 B. 439,376

D.

C.

492,101

495,103

Use the following information to answer items 19 to 24: Will Company entered into a finance lease on January 1, 2018. A third party guaranteed the residual value of the asset under the lease estimated to be P1,200,000 on January 1, 2023, the end of the lease term. Annual lease payments are P1,000,000 due each December 31 beginning December 31, 2018. The last payment is due December 31, 2022. The remaining useful life of the asset was six years at the commencement of the lease. Both the lessor and lessee used 10% as the interest rate. The PV of 1 at 10% for 5 periods is 0.62, and the PV of an ordinary annuity of 1 at 10% for 5 periods is 3.79. 19. What is the net lease receivable of the lessor at the commencement of the lease? A. 2,590,000 B. 3,790,000 C. 4,534,000

D. 4,990,000

20. What is the total interest that the company will earn over the lease term? A. 466,000 B. 1,210,000 C. 1,666,000

D. 2,410,000

21. What is the carrying value of the lease receivable as of December 31, 2019? A. 3,386,140 B. 3,987,400 C. 4,386,140

D. 4,987,400

22. What amount should be included in non-current assets in relation to the lease on December 31, 2019? A. 661,386 B. 2,000,000 C. 2,724,754 D. 3,386,140 23. What is the interest income 2020? A. 199,723 B. 272,475

C.

338,614

D.

398,740

24. What amount should be included in current assets in relation to the lease on December 31, 2020? A. 727,525 B. 1,000,000 C. 1,997,229 D. 2,724,754 25. On January 1, 2016, Bruce Company acquired a specialized packaging machine for P6,000,000 and leased it for a period of 6 years, after which the machine is to be returned to Bruce. The unguaranteed residual value of the packaging machine is P400,000. The lease term is arranged so that a return of 12% is earned by Bruce. The first lease payment is due on January 1, 2016. The PV of 1 at 12% for six periods is 0.51; PV of an annuity in advance of 1 at 12% for six periods is 4.60; and the PV of an ordinary annuity of 1 at 12% for six periods is 4.11. What is the annual lease payment required to yield the desired return? A. 1,260,000 B. 1,304,348 C. 1,410,219 D. 1,459,854 FARQ 220-1

Page 2 of 4...