33. On January 1, 2021, Garfunkel Co.

, a lessor, sold equipment that it had been leasing under

direct financing lease. On the same date, data relating to sale and lease follow:

Sales price P 400,000

Gross lease receivable 180,000

Unearned interest income 30,000

Implicit rate 12%

How much is the gain (or loss) on sale of the leased asset on January 1, 2021?

a.Nil

b.P 220,000

c.P 268,000

d.P 250,000

34. The following data relate to a sale and leaseback of equipment of Mrs. Robinson Co. on
December 31, 2021:

Selling price P 993,630

Cost of machinery 1,200,000

Accumulated depreciation 100,000

Annual rent payable 300,000

Estimated remaining life 5

Lease term 4

Implicit rate 8%

What amount of loss on sale and leaseback should Mrs. Robinson Co. recognized immediately
as of December 31, 2021?

a.Nil

b.P 106,370

c.P 206,370

d.P 506,370

35. Assume instead that the cost of the equipment is P 1,000,000 and the accumulated
depreciation is P 100,000, what amount of gain on sale and leaseback should Mrs. Robinson
Co. recognized as of December 31, 2021?

a.Nil

b.P 93,960

c.P 18,726
d. P 23,408

36. In connection with your audit of San Narciso Enterprises, you noted that the company has a
long-standing policy of acquiring company equipment by leasing. At the end of 2020, the
company entered into a lease for a new milling machine. The lease stipulates that 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, San Narciso may purchase the machine. The
estimated economic life of the machine is 12 years. San Narciso 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 payments P 50,000

Fair market value of machine at the inception of the lease 213,213

Estimated fair market value at the end of 5 years 150,000

Implicit rate 12%

Date of first lease payment Dec. 31, 2020

Based on the above and the result of your audit, compute for the following: ( Round off present
value factors to four decimal places.)

Amount to be capitalized as cost of the right of use asset.

a.Nil

b.P 213,216

c.P 201,865

d.P 120,089

37. Lease liability as of December 31, 2021.

a.Nil

b.P 132,799

c.P 182,799

d.P 120,089

38. Amount to be reported under current portion of the lease liability as of December 31, 2021.

a.P 31,776

b.P 34,064

c.P 35,589

d.Nil

39. Interest expense for the year 2021

a.P 19,586

b.P 14,411

c.P 18,224

d.Nil

40. Depreciation expense for the year 2021.

a.P 40,373

b.P 36,048

c.P 42,643

d.P 15,020

41. Cagayan Enterprises has been leasing machine to various customers. Early in 2021, the
company entered into a lease for a new milling machine to Tuguegarao Company. The lease
stipulates that annual payments will be made for 6 years. The payments are to be made in
advance on January 1 of each year. The estimated economic life of the machine is 12 years.
Tuguegarao uses the calendar year for reporting purposes and straight-line depreciation for
machine. In addition, the following information about the lease is also available:

Unguaranteed residual value P 20,000

Fair market value of machine at the date of inception of the lease 286,420

Implicit rate known both by the lessee and lessor 12%

Date of first lease payment Jan. 1, 2020

Based on the above and the result of your audit, compute for the following: (Round off present
value factors to four decimal places.)

The annual lease payments under the lease is

a.P 60,000

b.P 80,000

c.P 62,200

d.P 57,857

42. The total financial revenue to be earned by the lessor over the lease term is

a.P 86,782

b.P 60,722

c.P 93,580

d.P 73,580
43. The interest income to be recognized by the lessor in 2021 is

a.P 27,170

b.P 23,231

c.P 25,955

d.P 21,869

44. The total expenses related to the lease that will be recognized by the lessee in 2021 is

a.P 25,955

b.P 46,948

c.P 72,003

d.P 73,691

45. The amount to be reported as lease liability as of December 31, 2021 is

a.P 226,420

b.P 193,590

c.P 182,243

d.P 144,112

46. What are the five assertions in the audit of lease? 5 points

a.Allocation

Appraisal

Rights and Obligation

Existence

Presentation

b.Completeness

Existence or/Occurrence

Rights and Obligation

Valuation

Presentation and Disclosure

c.Reliability

Completeness

Neutrality
Relevance

Comparability

d.Fairness

Valuation

Presentation

Accuracy

Disclosure