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    6988 Finance Lease Lessee

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    The document provides information on several finance lease examples involving lessees. It includes details on calculating the right-of-use asset, lease liability, depreciation expense, and interest expense for the leases. Multiple choice questions are provided at the end of each example to test understanding of accounting for finance leases according to Philippine Financial Reporting Standards.

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    6988 Finance Lease Lessee

    Uploaded by

    FREE MOVIES
    28 views2 pages
    The document provides information on several finance lease examples involving lessees. It includes details on calculating the right-of-use asset, lease liability, depreciation expense, and interest expense for the leases. Multiple choice questions are provided at the end of each example to test understanding of accounting for finance leases according to Philippine Financial Reporting Standards.

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    6988-Finance-Lease-Lessee

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    The document provides information on several finance lease examples involving lessees. It includes details on calculating the right-of-use asset, lease liability, depreciation expense, and interest expense for the leases. Multiple choice questions are provided at the end of each example to test understanding of accounting for finance leases according to Philippine Financial Reporting Standards.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    28 views2 pages

    6988 Finance Lease Lessee

    Uploaded by

    FREE MOVIES
    The document provides information on several finance lease examples involving lessees. It includes details on calculating the right-of-use asset, lease liability, depreciation expense, and interest expense for the leases. Multiple choice questions are provided at the end of each example to test understanding of accounting for finance leases according to Philippine Financial Reporting Standards.

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    CPA REVIEW SCHOOL OF THE PHILIPPINES

    Manila
    FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/ESCALA/SANTOS/DELA CRUZ

    FINANCE LEASE - LESSEE


    1. At the beginning of current year, an entity leased a building from a lessor with the following pertinent
    information:
    Annual rental payable at the end of each year 2,000,000
    Purchase option that is reasonably certain to be exercised 1,500,000
    Lease bonus paid to lessor before commencement of the lease 500,000
    Lease incentive received 100,000
    Initial direct cost 900,000
    Estimated cost of restoring building as required by contract 2,500,000
    Leasehold improvement 3,000,000
    Lease term 5 years
    Useful life of building 10 years
    Implicit interest rate 8%
    PV of an ordinary annuity of 1 for 5 periods at 8% 3.99
    Present value of 1 for 5 periods at 8% 0.68
    1. What is the cost of the right of use asset?
    a. 12,800,000
    b. 12,000,000
    c. 15,000,000
    d. 14,200,000
    2. What is the lease liability at year-end?
    a. 7,720,000
    b. 7,000,000
    c. 8,800,000
    d. 8,000,000
    3. What is the depreciation of the right of use asset for current year?
    a. 1,200,000
    b. 1,500,000
    c. 2,400,000
    d. 3,000,000

    2. On January 1, 2022, an entity leased two automobiles for executive use. The lease required the entity to
    make five annual payments of P2,000,000 beginning December 31, 2022. At the end of the lease term,
    December 31, 2026, the entity had a residual value guarantee of the automobiles at P1,000,000. The
    interest rate implicit in the lease is 10% and the present value factors at 10% for 5 periods are 4.17 for an
    annuity due, 3.79 for an ordinary annuity and 0.62 for present value of 1.
    1. What is the lease liability on December 31, 2022?
    a. 7,020,000
    b. 5,722,000
    c. 7,580,000
    d. 6,338,000
    2. What is the current portion of the lease liability on December 31, 2022?
    a. 2,000,000
    b. 1,298,000
    c. 820,000
    d. 500,000
    3. What is the interest expense for 2023?
    a. 758,000
    b. 820,000
    c. 834,000
    d. 702,000

    6988
    Page 2

    3. On January 1, 2022, an entity entered into a 5-year lease with a lessor. Annual lease payments of
    P1,200,000 including annual executory cost of P200,000 are payable at the end of each year. The entity
    knows that the lessor expects an 8% implicit rate on the lease. The equipment is expected to have a useful
    life of 10 years. In addition, a third party has guaranteed to pay the lessor a residual value of P500,000
    at the end of the lease. The present value of an ordinary annuity of 1 for 5 years is 3.99 at 8% and the
    present value of 1 at 8% for 5 periods is 0.68. On December 31, 2022, what is the principal amount of
    the lease obligation?
    a. 3,990,000
    b. 3,309,200
    c. 3,676,400
    d. 3,971,040

    4. On December 31, 2022, an entity signed a 7-year finance lease for an airplane. The airplane’s fair value
    was P8,415,000. The entity made the first annual lease payment of P1,530,000 on December 31, 2022.
    The entity’s incremental borrowing rate was 12% and the interest rate implicit in the lease known to the
    lessee was 9%. The rounded present value factors for an annuity due are 5.50 at 9% for 7 years and 5.10
    at 12% for 7 years.
    1. What amount should be reported as lease liability on December 31, 2022?
    a. 8,415,000
    b. 7,803,000
    c. 6,885,000
    d. 6,273,000
    2. What amount should be reported as interest expense for 2023?
    a. 619,650
    b. 826,200
    c. 757,350
    d. 841,500
    3. In recording the December 31, 2023, by what amount should the lease liability be reduced?
    a. 856,800
    b. 520,200
    c. 910,350
    d. 703,800

    5. At the beginning of current year, an entity entered into a 5-year finance lease for an equipment. The
    equipment had a useful life of 8 years. The entity accounted for the acquisition of the finance lease at
    P4,500,000 which included a P600,000 bargain purchase option that is reasonably certain to be exercised.
    The expected fair value of the equipment is P1,500,000 at the end of 5 years and P500,000 at the end of
    8-year useful life. What amount of straight line depreciation should be recognized for the current year?
    since certain,use the useful life of the asset
    a. 425,000
    b. 500,000
    c. 800,000
    d. 600,000

    6. At the beginning of current year, an entity entered into an 10-year lease for an equipment. The entity
    accounted for the acquisition as a finance lease for P4,900,000 which included a P200,000 residual value
    guarantee. At the end of the lease, the asset will revert back to the lessor. It is estimated that the fair
    value of the asset at the end of the 12-year useful life would be P100,000. What amount should be
    recognized as straight line depreciation on the leased asset for the current year?
    a. 470,000 use shorter life
    b. 400,000
    c. 490,000
    d. 580,000

    E n d

    6988

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