1.

n connection with your review of Jonli Enterprises, you noted that the company has a
long standing policy of acquiring company equipment by leasing. Early in 2011, the
company entered into a lease for a new milling machine. The lease stipulates the
annual payments will be made for 5 years. The payments are to be made in advance
on December 31 of each year. At the end of the 5-year period, Jonli may purchase the
machine. The estimated economic life of the equipment is 12 years. Jonli uses the
calendar year for reporting purposes and straight-line depreciation for other
equipment. In addition, the following information about the lease is also available:

Annual lease payment (including executory costs of P 10,000) P 120,000

Purchase option price 50,000
Estimated fair market value of machine after 5 years 150,000
Implicit rate 10%
Date of first lease payment January 2, 2012

***Questions: Based on the foregoing and the result of your audit, compute for the
following:
(Round off present value factors to four decimal places.)
A. Amount to be capitalized as an asset for the lease of the milling machine:
a. 382,835 b. 489,734 c. 458,689 d. 508,689

B. Liability under finance lease as of December 31, 2012:

a. 261,838 b. 307,707 c. 273,560 d. 379,736

C. Amount to be reported under current portion of the finance lease as of December 31,
2012:
a. 72,026 b. 82,644 c. P 79,230 d. 83,816

D. Interest expense for the year 2012:

a. 0 b. 34,870 c. 33,804 d. 37,793

E. Depreciation expense for the year 2012:

a. 37,336 b. 40,811 c. 38,224 d. 97,948