Ia3 Prelims Acctg 019

*annual rent payable at end yr : PV of OA *annual rent payab
*annual rent payable at the beg. of the yr : PV of OA in adv *annual rent payab
*based sa book if w
DIRECT FINANCING LEASE SALES TYPE LEASE
(will revert) ; (annual rent payable at end yr)
Gross investment = gross rentals (called lease receivables in JE) Gross investment =
amt of RV, guarante
Net investment = Cost of asset OR PV of OA of annual rental
*pag given ang cost of asset, ayun ang gamitin Net investment = P
*pag walang cost of asset, PV of OA of annual rental hanapin not
total unearned interest income = Gross investment - Net investment
Unearned interest i
---------------------------------------------------------------
DIRECT FINANCING LEASE w/ INITIAL DIRECT COST Sales = whichever i
Gross investment = gross rentals (called lease receivables in JE) COGS = cost of asse
* if the RV is guaran
Net investment = cost of asset OR PV of OA of annual rental + initial
direct cost Gross profit = Sales
> results in new implicit rate kase yung net investment na dapat equal Initial direct cost =
lang sa cost ng asset or PV ng annual rent, nadagdagan dahil sa initial inaamortize pa)
direct cost. bababa ang implicit rate ngayon. -------------------------
RETURN OF ASSET
>maghanap ng implicit rate na kapag minultiply ang PV of OA at annual a. Whether guaran
rent mag eequal sa net investment For example : RV =
JE:
total unearned int inc = diff lang ulet ng GI at ng NI Inventory 3
*yung NI dito may initial direct cost ha Lease receivable
current interest income = net investment x new implicit rate b. When FV < RV
(yung sa amort table) For example : FV =
----------------------------------------------------------------- i. RV, guaranteed sc
DIRECT FINANCING LEASE W/ RESIDUAL VALUE The lessee will mak
(will revert) ; (annual rent payable at end yr) So on the book of t
Gross investment = absolute amt ng gross rentals + absolute amt ng Cash (diiference) 1
RV, guaranteed or not Inventory (FV)
Lease receivable
Net investment = cost of asset
ii. RV, unguaranteed
Net investment to be recovered from rentals = cost of asset OR PV of The lessor will reco
OA of annual rental - PV of RV,guaranteed or not Loss on finance lea
Inventory 2
Net lease receivable Lease receivable
i. if RV, guaranteed -------------------------
Net lease receivable = cost of asset OR PV of OA of annual rental + PV SALES TYPE WITH P
of RV, guaranteed
Gross investment =
ii. if RV, unguaranteed purchase option
Net lease receivable = cost of asset OR PV of OA of rentals
Net investmet = PV
total unearned int inc = GI - Cost of asset
Unearned interest i
---accounting problems---
a. Pag di given ang annual rental, at may RV Sales = NI (also the
Annual rental = Net investment to be recovered from rentals / PV of
OA COGS = cost of asse
>yung Net investment to be recovered from rentals dito ay = cost of Gross income = Sale
asset - PV of RV,guaranteed or not
i. will exercise purc
b. pag di indicated kung may revert or not pero may RV, guaranteed, at end yr, the LR =
meaning non magrerevert kay lessor yung asset For example : PO =
JE:
a. Pag di given ang annual rental, at may RV Sales = NI (also the
OA COGS = cost of asse
>yung Net investment to be recovered from rentals dito ay = cost of Gross income = Sale
i. will exercise purc
b. pag di indicated kung may revert or not pero may RV, guaranteed, at end yr, the LR =
meaning non magrerevert kay lessor yung asset For example : PO =
JE:
c. if FV of asset < RV of asset Cash 300k
For example : FV = 400k ; RV = 500k Lease receivable
i. under RV, guaranteed scenario, the lessee will pay for the difference.
so on the book of the lessor: ii. will not exercise
JE: For example : PO =
Cash (difference) 100k JE:
Machinery (FV) 400k Loss on finance lea
Lease receivable (RV) 500k Inventory 2
Lease receivable
ii. under RV, unguaranteed scenario, the lessor shall recognize a loss -------------------------
for the difference ACTUAL SALE OF U
JE: Example:
Loss on financial lease 100k Sales price 3
Machinery 400k Lease Receivable 5
Leaase receivable 500k Unearned interest
------------------------------------------------------------------
DIRECT FINANCING LEASE - TRANSFER OF TITLE (or means will not Computation
revert) Sales Price
RV COMPLETELY IGNORED CA of Lease receiva
Gross investment = gross rentals Lease receivab
Net investment = cost of asset Unearned int i
unearned interest income = diff ng GI at ng NI Loss on sale of leas
----------------------------------------------------------------- JE
DIRECT FINANCING LEASE BOTH W/ RV AND INITIAL DIRECT COST Cash 3 500
(will revert); (annual rent payable at end yr) Unearned interest i
Gross investment = absolute amt lang ng gross rentals + absolute amt Loss on sale of leas
lang din ng RV, guaranteed or not Lease receivable
Net investment = cost of asset or PV of OA of annual rental + initial

direct cost
*annual rent payable at end yr : PV of OA
*annual rent payable at the beg. of the yr : PV of OA in adv
*based sa book if will not revert, RV is completely ignored

SALES TYPE LEASE
Gross investment = absolute amt of gross rentals + PV of absolute

amt of RV, guaranteed or not
Net investment = PV of OA of annual rental + PV of RV, guaranteed or

not
Unearned interest income = diff between GI and NI
Sales = whichever is lower between FV and NI
COGS = cost of asset - PV of RV, unguaranteed + initial direct cost

* if the RV is guaranteed, no need to deduct
Gross profit = Sales - COGS
Initial direct cost = expensed immediately ( unlike sa operating lease

inaamortize pa)
-----------------------------------------------------------------------------------
RETURN OF ASSET TO LESSOR
a. Whether guaranteed or not, RV will be the same
For example : RV = 300k
JE:
Inventory 300k
Lease receivable 300k
b. When FV < RV
For example : FV = 200k ; RV = 300k
i. RV, guaranteed scenario
The lessee will make up for the deficiency by paying the difference.
So on the book of the lessor:
Cash (diiference) 100k
Inventory (FV) 200k
Lease receivable (RV) 300k
ii. RV, unguaranteed scenario

The lessor will recognize loss for the difference
Loss on finance lease 100k
Inventory 200k
--------------------------------------------------------------------------------------
SALES TYPE WITH PURCHASE OPTION
Gross investment = absolute amt of gross rentals + absolute amt of

purchase option
Net investmet = PV of OA of annual rental + PV of purchase option

Sales = NI (also the total PV)
COGS = cost of asset + initial direct cost
Gross income = Sales - COGS
i. will exercise purchase option

at end yr, the LR = PO and unearned int inc = 0
For example : PO = 300k
JE:
Gross income = Sales - COGS

at end yr, the LR = PO and unearned int inc = 0
JE:
Cash 300k
ii. will not exercise PO

For example : PO = 300k ; FV = 200k
JE:
Inventory 200k
-------------------------------------------------------------------------------------------
ACTUAL SALE OF UNDERLYING ASSET
Example:
Sales price 3 500 000
Lease Receivable 5 000 000
Unearned interest income 1 200 000
Computation
Sales Price
CA of Lease receivable 3 500 000
Lease receivable 5 000 000
Unearned int inc (1 200 000) (3 800 000)
Loss on sale of leased equipment 300 000
JE
Cash 3 500 000
Unearned interest inc 1 200 000
Loss on sale of lease equip 300 000
At the beginning of the current year, South Africa Company leased a building with the following information:
Annual fixed payment in advance at the beginning of each lease year
The Initial direct cost paid
Lease incentive received
Lease bonus paid to the lessor before commencing of lease
Discounted amount of restoring the building as required by the contract
Purchase option that is not reasonably certain to be exercised
The Lease term is 5 years
The Useful life of building 8 years
The implicit interest rate of 8%
The present value of an annuity of 1 in advance at 8% for 5 periods 4.31
The Present value of 1 at 9% for 5 periods 0.68
SOLUTIONS:
Annual fixed payment in advance at the beginning of each lease year
The present value of an annuity of 1 in advance at 8% for 5 periods
Initial lease liability
Initial lease liability

The Initial direct cost paid
Lease incentive received
Lease bonus paid to the lessor before commencing of lease
Discounted amount of restoring the building as required by the contract
Cost of right of use asset
Cost of right of use asset

Lease term (shorter)
Annual depreciation
8%
Date Payment Interest Principal
Jan 1 2021
Jan 1 2021 1,000,000 - 1,000,000
1,000,000 264,800 735,200
JOURNAL ENTRIES:
Date Account Title Particulars
Jan. 1 Right of use asset
Lease Liability
Cash
To record the Right of use asset of a lease property.
Jan. 1 Lease liability
Cash
To record lease payment.
Jan. 1 Accrued Interest
Interest Expense
To record accrued interest
Dec. 31 Depreciation Expense
Accumulated Depreciation
To record annual depreciation.
e following information:
1,000,000 Requirements:
350,000 1. How much is the initial lease liability?
150,000 2. How much is the cost of right of use asset?
100,000 3. How much is the annual depreciation?
200,000 4. What are the related journal entries?
300,000
1,000,000
4.31
4,310,000
4,310,000
350,000
(150,000)
100,000
200,000
4,810,000
4,810,000
5
962,000
Lease Liability
4,310,000
3,310,000
2,574,800
Debit Credit
4,810,000
4,310,000
500,000
asset of a lease property.
1,000,000
1,000,000
264,800
264,800
962,000
962,000
Argentina Company leased out equipment under an operating lease to Austria Company.
The lease term is 5 years and the lease payment are made in advance on January 1 of each year
as shown in the following schedule:
1-Jan-20 1,000,000
1-Jan-21 1,200,000
1-Jan-22 1,400,000
1-Jan-23 1,600,000
1-Jan-24 1,800,000
The total contract price is 7,000,000
How much is the rental income on December 31, 2020?

Gross rentals 7,000,000
divided by lease term 5
Rental income 1,400,000
At the beginning of the current year, Ruffa Company leased a building to Dindi Company
under an operating lease with a 10 year lease term.
Annual rental 500,000
Ruffa paid initial direct cost to a real estate broker 150,000
The building is depreciated per year 120,000
Ruffa incurred insurance and property tax expense 90,000
How much is the net rent income for the current year?
Initial direct cost per year 15,000
Depreciation expense 120,000
Insurance and property tax expense 90,000
Net rent income 275,000
Denmark Company is in the business of leasing new sophisticated equipment.

The lessor expects a 12% return on net investment.
All leases are classified as direct financing lease.
At the end of the lease term, the equipment will revert to the lessor.
At the beginning of current year, an equipment is leased to a lessee with the following information:
Cost of equipment to the lessor 3,390,000

Residual value - unguaranteed -
Annual rental payable at the end of each year 600,000
Initial direct cost incurred by the lessor 143,400
Useful life and lease term in years 10
Implicit interest rate 12% PV of OA 5.65
How much is the net investment in the lease?

Cost of equipment to the lessor 3,390,000
Initial direct cost incurred by the lessor 143,400
Net investment 3,533,400
How much is the gross investment in the lease?

Gross rentals 6000000
Residual value - unguaranteed -
Gross investment 6,000,000
How much is the interest income in the lease?

new implicit rate 11% PV of OA 5.889
Interest income 388,674
Russia Company used leases as a method of selling products. In 2020, Russia completed construction of a pa
On January 1, 2020, the ferry was leased to the Slovakia Ferry Line on a contract specifying that ownership of
to the lessee at the end of the lease period.
Original cost 8,000,000
Fair value at lease date 13,000,000
Lease payment in advance 1,500,000
Residual value 2,000,000
Implicit interest rate 12%
Date of first lease payment January 1, 2020
Lease term (in years) 20
Present value of an annuity due of 1 at 10% for 20 periods 8.37
Present value of 1 at 12% for 20 periods 0.1

Residual value 2,000,000
How much is the net investment in the lease?

PV of lease payment 12,555,000
PV of residual value 200,000
How much is the gross profit on sale for 2020?
Sales 12,555,000
COGS 7,800,000
Gross profit 4,755,000
each year *annual rent payable at the beg. of the yr : PV of OA in adv
DIRECT FINANCING LEASE

Gross investment = gross rentals (called lease receivables in JE)
Net investment = Cost of asset OR PV of OA of annual rental

*pag given ang cost of asset, ayun ang gamitin
*pag walang cost of asset, PV of OA of annual rental hanapin
total unearned interest income = Gross investment - Net investment
---------------------------------------------------------------
DIRECT FINANCING LEASE w/ INITIAL DIRECT COST
Gross investment = gross rentals (called lease receivables in JE)
Net investment = cost of asset OR PV of OA of annual rental + initial

direct cost
> results in new implicit rate kase yung net investment na dapat equal
lang sa cost ng asset or PV ng annual rent, nadagdagan dahil sa initial
direct cost. bababa ang implicit rate ngayon.
>maghanap ng implicit rate na kapag minultiply ang PV of OA at

annual rent mag eequal sa net investment
total unearned int inc = diff lang ulet ng GI at ng NI

*yung NI dito may initial direct cost ha
current interest income = net investment x new implicit rate

(yung sa amort table)
-----------------------------------------------------------------
DIRECT FINANCING LEASE W/ RESIDUAL VALUE
Gross investment = absolute amt ng gross rentals + absolute amt ng
RV, guaranteed or not
Net investment to be recovered from rentals = cost of asset OR PV of

OA of annual rental - PV of RV,guaranteed or not
Net lease receivable

nformation: i. if RV, guaranteed
Net lease receivable = cost of asset OR PV of OA of annual rental + PV
of RV, guaranteed
ii. if RV, unguaranteed
Net lease receivable = cost of asset OR PV of OA of rentals
total unearned int inc = GI - Cost of asset
---accounting problems---
a. Pag di given ang annual rental, at may RV
OA
>yung Net investment to be recovered from rentals dito ay = cost of

b. pag di indicated kung may revert or not pero may RV, guaranteed,
meaning non magrerevert kay lessor yung asset
a. Pag di given ang annual rental, at may RV
OA
>yung Net investment to be recovered from rentals dito ay = cost of
b. pag di indicated kung may revert or not pero may RV, guaranteed,
meaning non magrerevert kay lessor yung asset
c. if FV of asset < RV of asset

i. under RV, guaranteed scenario, the lessee will pay for the difference.
so on the book of the lessor:
JE:
Cash (difference) 100k
Annual rent ###
Machinery (FV) 400k
PV of OA 5.889
###
ii. under RV, unguaranteed scenario, the lessor shall recognize a loss
for the difference
JE:
ted construction of a passenger ferry. Loss on financial lease 100k
ifying that ownership of the ferry will transfer Machinery 400k
Leaase receivable 500k
------------------------------------------------------------------
DIRECT FINANCING LEASE - TRANSFER OF TITLE (or means will not
revert)
RV COMPLETELY IGNORED
Gross investment = gross rentals
unearned interest income = diff ng GI at ng NI
-----------------------------------------------------------------
DIRECT FINANCING LEASE BOTH W/ RV AND INITIAL DIRECT COST
(will revert); (annual rent payable at end yr)
Gross investment = absolute amt lang ng gross rentals + absolute amt
lang din ng RV, guaranteed or not
Net investment = cost of asset or PV of OA of annual rental + initial

direct cost
OA in adv *annual rent payable at the beg. of the yr : PV of OA in adv
*based sa book if will not revert, RV is completely ignored
SALES TYPE LEASE
vables in JE) Gross investment = absolute amt of gross rentals + PV of absolute amt of
RV, guaranteed or not
ual rental
Net investment = PV of OA of annual rental + PV of RV, guaranteed or
al hanapin not
t - Net investment
T Sales = whichever is lower between FV and NI
vables in JE) COGS = cost of asset - PV of RV, unguaranteed + initial direct cost
* if the RV is guaranteed, no need to deduct
ual rental + initial
Gross profit = Sales - COGS
ment na dapat equal Initial direct cost = expensed immediately ( unlike sa operating lease
agan dahil sa initial inaamortize pa)
-----------------------------------------------------------------------------------
RETURN OF ASSET TO LESSOR
g PV of OA at a. Whether guaranteed or not, RV will be the same
For example : RV = 300k
JE:
Inventory 300k
plicit rate b. When FV < RV
i. RV, guaranteed scenario
The lessee will make up for the deficiency by paying the difference. So
on the book of the lessor:
+ absolute amt ng Cash (diiference) 100k
Inventory (FV) 200k
ii. RV, unguaranteed scenario

t of asset OR PV of The lessor will recognize loss for the difference
Inventory 200k
--------------------------------------------------------------------------------------
annual rental + PV SALES TYPE WITH PURCHASE OPTION
Gross investment = absolute amt of gross rentals + absolute amt of

purchase option
rentals
Net investmet = PV of OA of annual rental + PV of purchase option

om rentals / PV of
ls dito ay = cost of Gross income = Sales - COGS

y RV, guaranteed, at end yr, the LR = PO and unearned int inc = 0
JE:
om rentals / PV of
ls dito ay = cost of Gross income = Sales - COGS

y RV, guaranteed, at end yr, the LR = PO and unearned int inc = 0
JE:
Cash 300k
y for the difference.
ii. will not exercise PO
For example : PO = 300k ; FV = 200k
JE:
Inventory 200k
ll recognize a loss -------------------------------------------------------------------------------------------
ACTUAL SALE OF UNDERLYING ASSET
Example:
Sales price 3 500 000
Lease Receivable 5 000 000
Unearned interest income 1 200 000
r means will not Computation
Sales Price
CA of Lease receivable 3 500 000
Unearned int inc (1 200 000) (3 800 000)
Loss on sale of leased equipment 300 000
JE
AL DIRECT COST Cash 3 500 000
Unearned interest inc 1 200 000
tals + absolute amt Loss on sale of lease equip 300 000
al rental + initial
On January 1, 2020, Estonia Company leased in equipment with the following data
Annual rental payable at the end of each year
Lease term
Useful life of equipment
Implicit interest rate
The entity has the option to purchase the equipment on the expiration of the lease term by paying
There is a reasonable certainty that the entity shall exercise the option
The entity incurred initial direct cost of
Use 2 decimal places for PVF)
How much is the lease liability at January 1, 2020?

How much is the Right of use asset on December 31, 2021?
Annual rental payable at the end of each year 1,200,000

PVF of OA 4.97
Purchase option 320,000

PFV of 1 0.4
Lease liability
Initial direct cost
Right of use asset, Jan. 1, 2020
Annual Depreciation

Annual Deprection for 2 years
Cost of right of use asset, Dec. 31, 2021
12%
Jan. 1, 2020
Dec. 31, 2020 1,200,000 761,040 438,960
Dec. 31, 2021 1,200,000 708,364.80 491,635.20
On January 1, 2020, El Salvador Company leased equipment with the following data:
Annual rental is payable at the beginning of each year, starting January 1, 2020
The lease term is
The useful life of the equipment is
An implicit interest rate of
The entity incurred an initial direct cost of
(Use 2 decimal places for PVF)
How much is the interest expense on December 31, 2020?

Annual rental is payable at the beginning of each year, starting January 1, 2020 1,200,000
PVF of OA in advance 5.56

PFV of 1 0.4
Lease liability
Initial direct cost
Lease term
Annual Depreciation
12%
Jan. 1, 2020
Jan. 1, 2020 1,200,000 - 1,200,000
Jan. 1, 2021 1,200,000 672,000 528,000
On September 1, 2021, Maldita Company leased a building to Tupa Company with a lease term of
Monthly rentals for the 1st year are
and will increase by
A refundable security bonus received by lessor from the lessee is
How much is the lease revenue on December 31, 2021?

1st year 1,800,000
2nd year 1,854,000
3rd year 1,909,620
Total rentals 5,563,620
divided by 36 months
Monthly rental 154,545
mupltiplied by 4 (From Sept 1, 2021 - Dec. 31, 2021)
Lease revenue, Dec. 31, 2021 618,180
Sales type lease p. 449 IA2 2019
France Company is a dealer in equipment. At the beginning of the current year, equipment was leased to another en
Annual rental payable at the end of each year was 1,500,000

Lease term and useful life of machinery is 5
Cost of equipment 4,000,000
The entity incurred an initial direct cost of 200,000
At the end of the lease term, the lessee will own the property
(use 2 decimal places for PVF)
How much is the Gross investment?

How much is the net investment?
How much is the gross profit?

Gross Investment - lease receivables 8,000,000
PV of annual rental 5,400,000.0

PV of purchase option 285,000.00
Net Investment - total PV 5,685,000.00

Less : PV of unguaranteed RV -
Sales revenue 5,685,000.00

Initial direct cost 200,000
Less : PV od unguaranteed RV -
COGS 4,200,000

COGS 4,200,000
Gross profit 1,485,000.00
Theories
1,200,000 1.Under what condition can the
8 yrs Low-value lease
10 yrs 12-month with purchase option
12% 12 months or less and Low-valu
erm by paying 320,000 12 months or less term
250,000 2. How should a Right of use as

Useful life
Lease term or useful life whiche
Lease term
Lease term or useful life whiche
3. How should a lease liability be

5,964,000 Present value of lease payment
Present value of fixed lease pay
Absolute amount of lease paym
128,000 Fair value of underlying asset
6,092,000
250,000 4. What is the basis of the lesso
6,342,000 The length of the lease
10 The lease payments being at lea
634,200 The transfer of the risk and rewa
The economic life of the underly
6,342,000 5. Which statement characterize

1,268,400 The lessee records lease obliga
5,073,600 The lessor transfers the title of t
The lessee records depreciation
The lessor records depreciation
Present value
6,342,000 6. What is the primary difference
5,903,040 Allocation of initial direct costs in
5,411,404.80 Recognition of the manufacturer
Manner in which rental collection
Depreciation recorded each yea
7. What comprises gross investm

1,200,000 The absolute amount of lease p
8 yrs The present value of lease paym
10 yrs The absolute amount of lease p
12% The present value of lease paym
erm by paying 320,000
8. What is net investment?
250,000 Cost of the underlying asset onl
Gross investment less unearned
Lease payments
Lease payments plus the residu
6,672,000 On January 1, 2020
Annual rental payable at the end
Lease term is
128,000 Useful life of equipment is
6,800,000 Implicit interest rate
250,000 The entity has the option to purc
7,050,000 expiration of the lease term by p
10 There is a reasonable certainty
705,000 The entity incurred initial direct c
How much is the lease liability a

Present value How much is the Right of use as
6,800,000
5,600,000
5,072,000
a lease term of 3 yrs

150,000 On January 1, 2020,
3% per year Annual rental is payable at the b
120,000 starting January 1, 2020, is
The lease term is
The useful life of the equipment
The entity has the option to purc
expiration of the lease term by p
There is a reasonable certainty

The entity incurred an initial dire
How much is the interest expen
pment was leased to another entity with the following provisions:
yrs On September 1, 2021,

lease term of
Monthly rentals for the 1st year
in finalizing the lease agreement. A refundable security bonus rec
How much is the lease revenue

France Company is a
equipment was leased to anothe
Annual rental payable at the end

Lease term and useful life of ma
Cost of equipment
Purchase option
The implicit interest rate of
The entity incurred an initial dire
At the end of the lease term, the
How much is the Gross investm

How much is the net investment
what condition can the lessee apply the operating lease model?
with purchase option

s or less and Low-value lease
s or less term
ould a Right of use asset with a lease containing a purchase option that is reasonably certain to be exercised be depreciated?
m or useful life whichever is longer
m or useful life whichever is shorter
ould a lease liability be measured?

alue of lease payments
alue of fixed lease payments
amount of lease payment
of underlying asset
the basis of the lessor to classify a lease as either operating or finance?

h of the lease
payments being at least 50% of fair value
er of the risk and rewards of ownership
omic life of the underlying asset
statement characterized an operating lease?

e records lease obligation
r transfers the title of the underlying asset to the lessee for the duration of the lease term
e records depreciation and interest
r records depreciation and lease revenue
the primary difference between a direct financing and a sales type lease?
of initial direct costs incurred by the lessor over the lease term
on of the manufacturer of dealer profit at the inception of the lease
which rental collections are recorded as rental income
on recorded each year by the lessor
omprises gross investment in the lease?

ute amount of lease payments and unguaranteed residual value
nt value of lease payment plus the present value of residual value
ute amount of lease payments and residual value
nt value of lease payments plus the present value of unguaranteed residual value
net investment?
e underlying asset only
estment less unearned income
yments plus the residual value

Estonia Company leased in equipment with the following data:
ntal payable at the end of each year P1,200,000
8 years
of equipment is 10 years
12%
has the option to purchase the equipment on the
of the lease term by paying P320,000
reasonable certainty that the entity shall exercise the option.
incurred initial direct cost of P250,000
h is the lease liability at January 1, 2020? 6,092,000 (correct answer)

h is the Right of use asset on December 31, 2021? 5,073,600 (correct answer)
El Salvador Company leased equipment with the following data:

ntal is payable at the beginning of each year,
anuary 1, 2020, is P1,200,000
8 years
l life of the equipment is 10 years
t interest rate of 12%
has the option to purchase the equipment on the
of the lease term by paying P320,000
reasonable certainty that the entity shall exercise the option.
incurred an initial direct cost of P250,000
h is the interest expense on December 31, 2020? 672,000 (correct answer)
Maldita Company leased a building to Tupa Company with a

3 years
entals for the 1st year are P150,000
3% per year
ble security bonus received by lessor from the lessee iP120,000
h is the lease revenue on December 31, 2021?

618,180 (correct answer)
dealer in equipment. At the beginning of the current year,
t was leased to another entity with the following provisions:
ntal payable at the end of each year was P1,500,000

m and useful life of machinery is 5 years
P4,000,000
P500,000
cit interest rate of 12%
incurred an initial direct cost of P200,000 in finalizing the lease agreement.
d of the lease term, the lessee will own the property
h is the Gross investment? 8,000,000 (correct answer)

h is the net investment? 5,685,000 (correct answer)
h is the gross profit? 1,485,000 (correct answer)
be exercised be depreciated?
nt.
On January 1, 2020, Estonia Company leased in equipment with the following data
Annual rental payable at the end of each year
Lease term
Implicit interest rate
The entity incurred initial direct cost of
Use 2 decimal places for PVF
How much is the lease liability at January 1, 2020?

How much is the Right of use asset on December 31, 2021?
Annual rental payable at the end of each year 1,200,000

PVF of OA 4.97 5,964,000

PFV of 1 0.4 128,000
Lease liability 6,092,000
Right of use asset, Jan. 1, 2020 6,342,000
Useful life of equipment 10
Annual Depreciation 634,200
Right of use asset, Jan. 1, 2020 6,342,000

Annual Deprection for 2 years 1,268,400
Cost of right of use asset, Dec. 31, 2021 5,073,600
12%
Date Payment Interest Principal Present value
Jan. 1, 2020 6,342,000
Dec. 31, 2020 1,200,000 761,040 438,960 5,903,040
Dec. 31, 2021 1,200,000 708,364.80 491,635.20 5,411,404.80
On January 1, 2020, El Salvador Company leased equipment with the following data:
Annual rental is payable at the beginning of each year, starting January 1, 2020
The lease term is
The useful life of the equipment is
The entity incurred an initial direct cost of
How much is the interest expense on December 31, 2020?
Annual rental is payable at the beginning of each year, starting January 1, 2020 1,200,000
PVF of OA in advance 5.56

PFV of 1 0.4
Lease liability
Initial direct cost
Lease term
Annual Depreciation
12%
Date Payment Interest Principal Present value
Jan. 1, 2020 6,800,000
Jan. 1, 2020 1,200,000 - 1,200,000 5,600,000
Jan. 1, 2021 1,200,000 672,000 528,000 5,072,000
On September 1, 2021, Maldita Company leased a building to Tupa Company with a lease term of
Monthly rentals for the 1st year are
A refundable security bonus received by lessor from the lessee is
How much is the lease revenue on December 31, 2021?

1st year 1,800,000
2nd year 1,854,000
3rd year 1,909,620
Total rentals 5,563,620
divided by: total months 36 months
Monthly rental 154,545
mupltiply by: month used 4 (From Sept 1, 2021 - Dec. 31, 2021)
Lease revenue, Dec. 31, 2021 618,180
Sales type lease p. 449 IA2 2019
France Company is a dealer in equipment. At the beginning of the current year, equipment was leased to ano

The entity incurred an initial direct cost of 200,000
At the end of the lease term, the lessee will own the property
(use 2 decimal places for PVF)
How much is the Gross investment?

How much is the net investment?
Gross Investment - lease receivables 8,000,000
PV of annual rental 5,400,000.0

PV of purchase option 285,000.00

Less : PV of unguaranteed RV -

Less : PV od unguaranteed RV -
COGS 4,200,000

COGS 4,200,000
Gross profit 1,485,000.00
1,200,000 Theories
8 yrs 1.Under what condition can the lessee apply the operating
10 yrs Low-value lease
12% 12-month with purchase option
m by paying 320,000 12 months or less and Low-value lease
12 months or less term
250,000
2. How should a Right of use asset with a lease containing
Useful life
Lease term or useful life whichever is longer
Lease term
Lease term or useful life whichever is shorter
* in finding PVF, laging ung lease 3. How should a lease liability be measured?
term ang gagamitin regardless Present value of lease payments
kung may purchase option Present value of fixed lease payments
or wala Absolute amount of lease payment
Fair value of underlying asset
4. What is the basis of the lessor to classify a lease as either operatin

The length of the lease
The lease payments being at least 50% of fair value
The transfer of the risk and rewards of ownership
The economic life of the underlying asset
5. Which statement characterized an operating lease?

The lessee records lease obligation
The lessor transfers the title of the underlying asset to the
The lessee records depreciation and interest
The lessor records depreciation and lease revenue
6. What is the primary difference between a direct financing and a sales type
Allocation of initial direct costs incurred by the lessor over the lease term
Recognition of the manufacturer of dealer profit at the ince
Manner in which rental collections are recorded as rental in
Depreciation recorded each year by the lessor
1,200,000
8 yrs 7. What comprises gross investment in the lease?
10 yrs The absolute amount of lease payments and unguaranteed
12% The present value of lease payment plus the present value
m by paying 320,000 The absolute amount of lease payments and residual value
The present value of lease payments plus the present valu
250,000
8. What is net investment?
Cost of the underlying asset only
Gross investment less unearned income
Lease payments
* if nag advance payment, Lease payments plus the residual value
6,672,000 mababawasan yung lease term
ng isang period pero
magaadd din sa huli.
128,000
6,800,000
250,000
7,050,000
10
705,000
ease term of 3 yrs

150,000
3% per year
120,000
ment was leased to another entity with the following provisions:
yrs
in finalizing the lease agreement.

lessee apply the operating lease model?
set with a lease containing a purchase option that is reasonably certain to be exercised be depreciated?
ver is longer
ver is shorter
y a lease as either operating or finance?
ards of ownership
he underlying asset to the lessee for the duration of the lease term
and interest
financing and a sales type lease?

or over the lease term
of dealer profit at the inception of the lease
ns are recorded as rental income
r by the lessor
ment in the lease?

ayments and unguaranteed residual value
ment plus the present value of residual value
ayments and residual value
ments plus the present value of unguaranteed residual value
Zambia Company related data are:
Accounting Income 1,600,000
Nontaxable interest received 50,000
Long-term loss accrual in excess of deductible amount 100,000
Depreciation in excess of financial depreciation 250,000
Taxable Income 1,400,000
How much is the current tax expense?
How much is the total income tax expense?
How much is the deferred tax liability?
How much is the deferred tax asset?
Remarks
Nontaxable interest received (50,000) permanent difference
Long-term loss accrual in excess of deductible amount 100,000 DTA
Depreciation in excess of financial depreciation (250,000) DTL
Taxable Income 1,400,000
Corporate tax rate 30%
Current tax expense 420,000 current tax expense/ inc tax exp

Nontaxable (50,000)
Accounting Income subj. to tax 1,550,000 total income tax expense
Total income tax expense 465,000
Depreciation in excess of financial depreciation 250,000

Deferred tax liability 75,000
Long-term loss accrual in excess of deductible amount 100,000

Deferred tax asset 30,000
in SFP
income tax expense- current 420000
income tax expense-deferred 75000 nakadefer
income tax benefit -30000
total 465000
dtl 75000
dta -30000
net dtl 45000
(example from confe)
yr 1 yr2 yr3
Acc inc slm 500k 500k 500k 1.5M
permanent difference tax inc double declining 750k 500k 250k 1.5M
temporary diff -250000
current tax expense/ inc tax expense-current
total income tax expense

50k
0
At the beginning of the current year, the memorandum of records of Mimi Company shows the following information:
The fair value of plan assets 6,000,000
Projected benefit obligation 7,000,000
Prepaid / Accrued benefit cost -1,000,000
During the current year, the following transactions are:

Current service cost 1,000,000
Past service cost 200,000
Actual return on plan assets 800,000
Contribution to the plan 1,100,000
Benefits paid 500,000
Actuarial loss due to increase in PBO 800,000
Discount rate 10%
SOLUTIONS
Interest Expense on PBO
multiplied by discount rate 10% 700,000
Less: Interest Income on FVPA
Fair value of plan asset 6,000,000
multiplied by discount rate 10% 600,000
Employee benefits expense 1,300,000

Less: Interest income on FVPA 600,000
Remeasurement gain on plan assets 200,000
Less: Actuarial loss due to increase in PBO 800,000
Net remeasurement loss 600,000

Net remeasurement loss 600,000
Defined benefit cost 1,900,000
Less: Contribution to the plan 1,100,000
Accrued benefit cost during the year 800,000
Prepaid/ Accrued benefit cost, beginning -1,000,000

Prepaid/ Accrued benefit cost, ending -1,800,000
Related Journal Entry:

Account title Particulars Debit Credit
Net remeasurement loss - OCI -600,000
Prepaid/ Accrued benefit cost 800,000
Cash 1,100,000
To record defined benefit cost
Reconciliation
Fair value of plan assets, beginning 6,000,000
Less: Benefits paid 500,000
Fair value of plan assets, ending 7,400,000
Projected benefit obligation, beginning 7,000,000

Interest expense on PBO 700,000
Less: Benefit paid 500,000
Projected benefit obligation, ending 9,200,000

Less: Projected benefit obligation, ending 9,200,000
Prepaid/ Accrued benefit cost, ending -1,800,000
lowing information: Requirements:
1. How much is the Employee benefits expense?
2. How much is the Net remeasurement loss?
3. How much is the Accrued benefit-cost during the year?
4. What are the related journal entries?
IS NET INC (1,300,000)

OCI OCI 600,000
NCL TOTAL COMP INC (700,000)
ASSET
Reconcile the FVPA, PBO & Prepaid/Accrued benefit cost
Fair value of plan assets, beginning 6,000,000
Less: Benefits paid 500,000
Projected benefit obligation, beginning 7,000,000

Interest expense on PBO 700,000
Less: Benefit paid 500,000
Projected benefit obligation, ending 9,200,000

Less: Projected benefit obligation, ending 9,200,000
Prepaid/ Accrued benefit cost, ending (1,800,000)
Filipinas Company’s Accounting income for 2020 is 2,750,500
Megan, the accounting specialist is considering the items

below in computing for the income tax return:
The interest income from Mundo Bank is 62,800
Depreciation accepted by BIR is 35,600 lower than depreciation in the b
Prepayment is made by the company and the
related expenses are to be incurred next year. 120,000
The tax rate is 30%

How much is the income tax expense - current?
at full amt. 30% Remarks
Accounting income 2,750,500 825,150
Less: Interest income 62,800 18,840 Permanent difference
Accounting income subj. to tax 2,687,700 806,310 Total income tax expense
Add: Depreciation lower than the book 35,600 10,680 DTL
Less: Prepayment 120,000 36,000 DTL
Taxable income 2,603,300 780,990 Total income tax expense- current
Monaco Company had a pretax Accounting income

on December 31, 2020. 675,200
Other related data during 2020:

Received interest income on savings deposit during the year. 87,500
Collected annual lease rental from November 1, 2020, to October 31, 2021. 600,000
The tax rate is 30%
How much is the income tax expense - current?

Accounting income 675,200 202,560
Less: Interest income 87,500 26,250 Permanent difference
Accounting income subj. to tax 587,700 176,310 Total income tax expense
Add: Rent payment in advance 500,000 150,000 DTA
Taxable income 1,087,700 326,310 Total income tax expense- current
Hawaii Company reported an Income tax expense - current 157,800

During the year, deferred tax asset increases by 12,000
while deferred tax liability increase by 18,000
The tax rate is 30%
How much is the Accounting income subject to income tax?

Total income tax expense- current 157,800
divided by tax rate 30%
Taxable income 526,000
Add:
DTL 18,000
divided by tax rate 30% 60,000
Less:
DTA 12,000
divided by tax rate 30% 40,000
Accounting income subj to tax 546,000
At the beginning of the current year, the memorandum of records show the following information:
Prepaid / Accrued benefit cost (850,000)
During the current year, the following transactions are:

Discount rate 12%
Expected rate of return 14%
How much is the Employee benefits expense?

How much is the Net remeasurement gain?
How much is the ending balance of Accrued benefit-cost at year-end?

Add: Interest expense on PBO
Discount rate 12% 702,000
Less: Interest income on FVPA

Less: Interest income on FVPA 600,000
Remeasurement gain on plan assets 275,000
Less: Actuarial loss due to increase in PBO 240,000
Net remeasurement gain 35,000

Net remeasurement gain 35,000
Defined benefit cost 2,092,000
Less: Contribution to the plan 1,200,000
Prepaid / Accrued benefit cost (850,000)

Accrued benefit cost at year-end 1,742,000
THEORIES
What is Accounting profit?
The profit for a period before deducting tax expense
The profit for a period following tax law
The profit after current tax expense determined followi
The profit for a period after deducting tax expense
ower than depreciation in the book.
What is a Taxable income?
Is based on IFRS
Is reported in the income statement
Differs from accounting income due to differences in in
Differs from accounting income due to differences in in
Which is not a temporary difference?

The Life insurance premium paid in advance by the en
The prepaid expenses made by the entity.
tax expense Dividends received by the entity
The advanced collection received by the entity.
tax expense- current When should an entity offset a deferred tax ass
Offsetting is not allowed in PFRS
When the entity has a legally enforceable right to offset and the
When the income taxes are levied by the same taxing
Under all circumstances
Which statement characterizes a defined contr

Investment risk is borne by the employer
Contributions are made in equal amounts by employer
Defined contribution plans are complex than defined b
Employer’s obligation is satisfied by making the appro
Which characterizes a defined benefit plan?

Retirement benefits are based on the plan’s benefit fo
Investment risk is borne by the employee.
tax expense Retirement benefits depend on how well pension fund
Defined benefit plans are comparatively simple.
tax expense- current
How would the entity account for a defined ben
The expense recognized each period is equal to the c
Appropriate funding must be established to ensure tha
The liability is determined based upon variables that re
The employer’s only responsibility is to contribute each
Which are mandatory employee benefits?

SSS/Pag-ibig/Phil-health employer contributions and 1
SSS/Pag-ibig/Phil-health employee contributions and
SSS/Pag-ibig/Phil-health employer contributions, Chris
SSS/Pag-ibig/Phil-health employee contributions, Chri
nformation:
cting tax expense
e determined following tax law

ng tax expense
e to differences in interperiod tax allocation and permanent differences

e to differences in interperiod tax allocation
n advance by the entity when the immediate family is the beneficiary.
by the entity.
deferred tax asset and a deferred tax liability?
right to offset and the income taxes are levied by the different taxing authority
by the same taxing authority and the entity has a legally enforceable right to offset a current tax asset again
s a defined contribution plan?
mounts by employer and employee

plex than defined benefit plans
y making the appropriate amount of periodic payments
benefit plan?
he plan’s benefit formula.
w well pension fund assets have been managed.

tively simple.
for a defined benefit plan?

od is equal to the cash contribution to the plan.
ished to ensure that enough funds would be available at retirement.
pon variables that reflect current salary levels.
s to contribute each year.
ee benefits?
contributions and 13 months pay.
e contributions and 13 months pay.
contributions, Christmas bonus, and 13 months pay.
e contributions, Christmas bonus, and 13 months pay.
ent tax asset against a current tax liability.
1
Israel Company related data on Defined benefit plan for the year ended December 31, 2021:
Current service cost 70,250
Benefit paid 60,800
Contribution to the fund 30,000
The fair value of plan assets
1-Jan 1,700,000
31-Dec 2,000,000
Projected benefit obligation
1-Jan 1,950,000
31-Dec 2,300,000
Past service cost for the current year 30,500
Discount rate 12%
Expected rate of return 10%
How much is the retirement benefit expense for the current year?
Current service cost 70,250
Interest Expense on PBO
Less: Interest income on plan assets
Retirement benefit expense 130,750
2
At the beginning of the current year, Latvia Company leased a machine to Lithuania Company
Lease term and useful life 10 yrs
Implicit rate 15%
Annual lease payment 2,020,520
Guaranteed residual value 320,600
The lease is property classified as a direct financing lease.
The property will revert to the lessor.
The entity used 4 decimal places for the PV factor
Annual lease payment 2,020,520
Lease term and useful life 10
3
Sweden Company reported an accounting income of P3,150,000 for the year 2019.
Interest income on savings deposit 28,700
Book depreciation in excess of tax depreciation 175,200
Rent collected for 2019, 2020, and 2021 720,000
Tax rate 30%
How much is the income tax expense- current?
Accounting income 3150000 945000
Interest income on savings deposit 28,700 8,610 permanent diff
Accounting income subj. to tax 3,121,300 936,390
Book depreciation in excess of tax depreciation 175,200 52,560 DTL
Rent collected for 2019, 2020, and 2021 480,000 144,000 DTA
Taxable income 3,426,100 1,027,830 Income tax expense-current
4
On January 1, 2021, Ecuador Company leased in a property
Annual rental is payable at the end of each year 500,000
Lease term 5
Useful life 8
Implicit rate 12%
The entity uses 2 decimal places for the PV factor.
How much is the interest expense on Dec 31, 2021 (round-off answer to the nearest peso value)?
PV of annual rental
PV of OA 3.6 1,800,000
PV of Residual value
PV factor 0.57 182,400
Cost of right of use asset 1,982,400
Implicit rate 12%
Interest expense - Dec 31, 2021 237,888
5
On January 1, 2021, Norway Company leased machinery from China company for 6
useful life of the asset is 8 years
Equal annual payments under the lease are 180,000 and are due on December 31 each year starting December 31
The incremental borrowing rate is 12%

The implicit rate is 10%
The lease provides for a transfer of title to the lessee upon the expiration of the lease term
(Use 2 decimal places for PV factor).
How much is the lease liability on December 31, 2021?

Annual payment 180,000
PV of OA 4.36
Lease liability, Jan 1, 2021 784800
Date Payment Interest Principal PV
1-Jan 784800
31-Dec 180,000 78480 101,520 683,280
6
The related data of Mariah Company:
Gross monthly salary 1,503,120
SSS Premium expense 56,725
Pag-ibig premium expense 24,000
Phil-health premium expense 48,950
SSS Contribution payable 120,500
Pag-ibig contribution payable 48,000
Phil-health contribution payable 97,900
13th month pay 125,260
Christmas Bonus 100,000
Sick leave cash conversion 200,800
Employee's health card premium 64,000
How much is the other employee benefits expense?
SSS Premium expense 56,725
Pag-ibig premium expense 24,000
Phil-health premium expense 48,950
13th month pay 125,260
Christmas Bonus 100,000
Sick leave cash conversion 200,800
Employee's health card premium 64,000
Other employee benefits expense 619,735
7
Wales Company leased office premises to Finnish, Inc. for a 5-year term beginning January 2, 2021
The details of an operating lease:

Year 1 2,100,000 per annum
year 2-5 2,310,000 per annum
However, as an inducement to enter the lease, the lessor grants the first three months of the lease rent-free
How much is the rental income in 2021?
Year 1 2,100,000 x9/12 1,575,000
year 2-5 2,310,000 x4 9,240,000
10,815,000
Rental income 2021 2,163,000
8
South Africa Company reported a taxable income of 2,575,000
The reconciling items are as follows:

Actual claim paid over accrual of product liability claim 375,100
Tax rate 30%
Taxable income 2,575,000
Actual claim paid over accrual of product liability claim 375,100
Accounting income subj. tax 2,774,800
Tax rate 30%
9
Danish Company related data on Defined benefit plan for the year ended December 31, 2021:
Current Service cost 60,800

The fair value of plan assets
1-Jan 2,100,000
31-Dec 2,400,000
Projected benefit obligation:
1-Jan 2,200,000
31-Dec 2,500,000

The discount rate is 6% for January 1, 2021, and 5% for January 1, 2022
The expected rate of return is 8% for January 1, 2021, and 10%
How much is the actual return on plan assets?

FV, end 2,400,000
FB, beg 2,100,000
10
On January 1, 2021, El Salvador Company leased-in a property
The related data:
Annual fixed payment in advance at the beginning of each lease year 300,000
The lease term is 8 years
The useful life of the equipment is 10 years
The guaranteed residual value by the lessee is 157,300
The implicit interest rate is 10%
The lease incentive received is 50,000
Th lease bonus paid to the lessor before commencing of a lease is 180,000
The initial direct cost paid by the lessee is 350,000
The entity used 2 decimal places for the PV factor
How much is the right of use asset on December 31, 2022 (round off answer to the nearest peso value)?
Annual payment 300,000
PV of OA in advance 5.87 1,761,000
RV 157,300
PV 0.47 73,931
Bonus paid 180,000
Incentive received 50,000
Right of use of asset, Jan 1 2,314,931
Depreciation for 2 yrs 578,733
Right of use of asset, Jan 1 2,314,931

Depreciation for 2 yrs 578,732.75
Right of use of asset, Dec. 31, '22 1,736,198
11
Among the items reported on Catriona Company's income statement for the year ended December 31, 2020, were the follow
Accounting income 785,500

Payment of penalty 18,200
Insurance premium expense on a life of an officer
with the employee's family as beneficiary 10,000
Dividends income 25,000
Unearned rent income 120,525
The tax rate is 30%

Accounting income 785,500
Dividends income 25,000
Payment of penalty 18,200
Accounting income subj. to tax 770,500
Tax rate 30%
12
Oklahoma Company is engaged in leasing equipment. Such equipment was delivered to a lessee at the beginning of a current
under a direct financing lease with the following provisions:

Useful life and lease term in years 8
Implicit interest rate 12%
The annual rental is payable at the end of each year. The equipment will revert to the lessor upon lease expiration.
How much is the annual rental payment?

PV of RV
PV 0.4 64000
PV of OA 4.97
Annual payment 825000
permanent diff
Income tax expense-current
years The
1 each year starting December 31, 2021

e lease rent-free
Accounting income xx
Less: Interest income (xx)
Accounting income subj. to tax xx
Book dep in excess xx
Less: Actual claim (xx)
Taxable income xx eto given
1:
for January 1, 2022
peso value)?
cember 31, 2020, were the following:
see at the beginning of a current year

upon lease expiration.

Ia3 Prelims Acctg 019

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Ia3 Prelims Acctg 019

Uploaded by

Copyright:

Available Formats

*annual rent payable at end yr : PV of OA *annual rent payab

Net investment = cost of asset or PV of OA of annual rental + initial

*based sa book if will not revert, RV is completely ignored

Gross investment = absolute amt of gross rentals + PV of absolute

Net investment = PV of OA of annual rental + PV of RV, guaranteed or

Unearned interest income = diff between GI and NI

Sales = whichever is lower between FV and NI

COGS = cost of asset - PV of RV, unguaranteed + initial direct cost

Gross profit = Sales - COGS

Initial direct cost = expensed immediately ( unlike sa operating lease

ii. RV, unguaranteed scenario

Gross investment = absolute amt of gross rentals + absolute amt of

Net investmet = PV of OA of annual rental + PV of purchase option

COGS = cost of asset + initial direct cost

Gross income = Sales - COGS

i. will exercise purchase option

COGS = cost of asset + initial direct cost

Gross income = Sales - COGS

i. will exercise purchase option

ii. will not exercise PO

Initial lease liability

Cost of right of use asset

How much is the rental income on December 31, 2020?

Denmark Company is in the business of leasing new sophisticated equipment.

Cost of equipment to the lessor 3,390,000

How much is the net investment in the lease?

How much is the gross investment in the lease?

How much is the interest income in the lease?

How much is the gross investment in the lease?

How much is the net investment in the lease?

How much is the gross profit on sale for 2020?

DIRECT FINANCING LEASE

Net investment = Cost of asset OR PV of OA of annual rental

Net investment = cost of asset OR PV of OA of annual rental + initial

>maghanap ng implicit rate na kapag minultiply ang PV of OA at

total unearned int inc = diff lang ulet ng GI at ng NI

current interest income = net investment x new implicit rate

Net investment = cost of asset

Net investment to be recovered from rentals = cost of asset OR PV of

Net lease receivable

total unearned int inc = GI - Cost of asset

>yung Net investment to be recovered from rentals dito ay = cost of

c. if FV of asset < RV of asset

Net investment = cost of asset or PV of OA of annual rental + initial

ii. RV, unguaranteed scenario

Gross investment = absolute amt of gross rentals + absolute amt of

Unearned interest income = diff between GI and NI

Sales = NI (also the total PV)

i. will exercise purchase option

i. will exercise purchase option

How much is the lease liability at January 1, 2020?

Annual rental payable at the end of each year 1,200,000

Purchase option 320,000

Right of use asset, Jan. 1, 2020

How much is the interest expense on December 31, 2020?

Purchase option 320,000

How much is the lease revenue on December 31, 2021?

Sales type lease p. 449 IA2 2019

Annual rental payable at the end of each year was 1,500,000

How much is the Gross investment?

Annual rental payable at the end of each year was 1,500,000

PV of annual rental 5,400,000.0

annual rent payable at end yr : PV of OA annual rent payab