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FAR QUIZ 1 - Problems
FAR QUIZ 1 - Problems
FAR QUIZ 1 - Problems
On January 1, 2019, an entity purchased a new machine for P6,000,000 for the purpose of
leasing it. The machine had an estimated 10-year life. On April 1,2019, the entity leased the
machine to a lessee for three years at a monthly rental of P400,000. The lessee paid the rental for
one year of P4,800,000 on April 1,2019 and additionally paid P900,000 to the lessor as a lease
bonus to obtain the three-year lease. On April 1,2019, the entity paid P300,000 to a broker as a
finder fee.
What is the net rental income for 2020? 4,440,000
2. On July 1,2019, an entity leased an equipment to a lessee under a 3-year operating lease.
Total rent for the lease term is P3,600,000, payable P50,000 monthly for the first lease year,
P75,000 monthly for the second lease year and P175,000 monthly for the third lease year. All
payments were made when due.
On June 30,2021, what amount should be reported as accrued rent receivable? 900,000
3. (Item 3-5) ABC is a dealer in equipment. At the beginning of the current year, an
equipment was leased to another entity with the following provisions:
Annual rental payable at the end of each year 1,400,000
Cost equipment 4,000,000
Implicit Interest rate 12%
Lease term and useful life of machinery 5 years
PV of 1 for 5 periods at 12%, 0.57
PV of ordinary annuity of 1 for 5 periods at 12%, 3.60
Unguaranteed residual value 400,000
The equipment will revert to the lessor at the end of the lease term. The perpetual inventory
system is used. The lessor incurred initial direct cost of 150,000 in finalizing the lease
agreement.
What is the total amount of unearned interest income to be amortized over the lease? 2,132,000
7. An entity is in the business of leasing new sophisticated equipment. The lessor expects at
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 the equipment to the lessor 5,000,000
Residual value unguaranteed 600,000
Annual rental payable in advance at the beginning of each year 901,079
Initial direct cost incurred by the lessor 250,000
Useful life and lease term 8 years
Implicit interest rate after initial direct cost 12%
PV of 1 for 8 periods at 12% 0.40
PV of an annuity in advance of 1 for 8 periods at 12% 5.56
What is the gross investment in the lease? 7,808,632
10. An entity decided to enter the leasing business. The entity acquired a specialized
packaging machine for P2,300,000. At the beginning of current year, the entity leased the
machine for a period of six years, after which title to the machine is transferred to the lessee. The
six annual lease payments are due in advance at the beginning of each year. The residual value of
the machine is P200,000. The lease terms are arranged so that a return of 12% is earned by the
lessor. The present value of 1 at 12% for 6 periods is 0.51, the PV of an annuity in advance of 1
at 12% for 6 periods is 4.60 and the PV of an ordinary annuity of 1 at 12% for 6 periods is 4.11.
What is the annual lease payments payable in advance required to yield the desired return?
500,000
15. On January 1, 2019, DEF Company entered into a 10-year lease agreement with XYZ
Company for industrial equipment. Annual lease payments of P1,000,000 are payable at the end
of each year. The lessor expected a 10% return on the lease which is the implicit rate in the lease.
The equipment is expected to have an estimated useful life of 10 years. In addition, a third party
has guaranteed to pay XYZ a residual value of P500,000 at the end of the lease. PV of an
ordinary annuity of 1 at 10% for 10 periods is 6.14. PV of 1 at 10% for 10 periods is 0.39.
What is the balance of lease liability as of December 31, 2020?
16. (Item 16 & 17) on January 1, 2019, Hope Company leased a machine to another entity for a
four-year period. The annual rentals will be paid by the lessee beginning December 31, 2019.
The lease agreement called for a 10% increase in annual rental per annum. The rental due on
December 31, 2022 was P133,100.
What is the rental income for the year ended December 31, 2019?
20. A six-year finance lease specifies equal minimum annual lease payments. Part of this
payment represents a reduction in the lease liability. The portion of the minimum lease payment
in the fourth year applicable to the reduction of the lease liability should be Less than in the
fifth year
21. A six-year finance lease entered into on December 31 of the current year specified equal
minimum annual lease payments due in December 31 of the following?
I. Interest Expense
II. Interest Liability
-II ONLY
22. If the residual value of a leased asset is greater than the amount guaranteed by the lessee.
- THE LESSEE HAS NO OBLIGATION RELATED TO THE RESIDUAL VALUE.
23. The accounting concept that is principally used to classify leases into operating and finance is
- SUBSTANCE OVER FORM
24. In an operating lease that is recorded by the lessee, the equal monthly rental payments shall
be
-RECORDED AS A RENTAL EXPENSE