On June 30, 2015, KangKong Company sold equipment for P4,650,000. The On June 30, 2015, Master Shifu Company sold an equipment for P4,500,000. On January 1, 2015, Pedro Penduko Company sold a machine and immediately

2. On January 1, 2015, Senyora Company sold equipment to an unaffiliated entity

for P5,700,000. The equipment had a carrying amount of P4,500,000 and a remaining life of five years. On the same date, the entity leased back the equipment at P1,350,000 per year payable in advance for a 5-year period. The lessor’s implicit interest rate in the lease is 10. The entity used the double declining balance method of depreciation. What is the unearned income on the sale and leaseback on December 31, 2015? a. 1,200,000 c. 720,000 b. 960,000 d. 0 Answer is c Solution: Unearned income – January 1, 2015 5,700,000 – 4,500,000 1,200,000 Realized in 2015 40 x 1,200,000 480,000 Unearned income – December 31, 2015 720,000

3. On June 30, 2015, KangKong Company sold equipment for P4,650,000. The

equipment had a carrying amount of P4,050,000 and a remaining useful life of 10 years. That same day, the entity leased back the equipment at P45,000 per month for 5 years with no option to renew the lease or repurchase the equipment. What amount should be reported as rent expense for 2015? a. 540,000 c. 270,000 b. 600,000 d. 300,000 Answer is c Solution: Rent Expense – July to December 2015 45,000 x 6 270,000

4. On June 30, 2015, Master Shifu Company sold an equipment for P4,500,000.

The equipment had a carrying amount of P3,900,000 and a remaining life of 10 years. That same day, the entity leased back the equipment at P12,000 per month for 2 years with no option to renew the lease or repurchase the equipment. The present value of the lease payments using the appropriate interest rate was P258,650 on June 30, 2015 What is the rent expense for the year ended December 31, 2015? a. 70,000 c. 54,000 b. 72,000 d. 64,000 Answer is b Solution: Rent Expense – July to December 2015 12,000 x 6 72,000

5. On January 1, 2015, Pedro Penduko Company sold a machine and immediately

leased it back at an annual rental that was determined to be sufficiently lower than market rent. The following data relate to the sale and leaseback transaction: Sale price below fair value 5,000,000 Fair value of machine 7,500,000 Carrying amount of machine 6,500,000 Remaining life of machine 10 years Lease term 2 years What total amount of loss should be recognized in the income statement for 2015? a. 1,500,000 c. 750,000 b. 1,000,000 d. 500,000 Answer is c Solution: Sale Price 5,000,000 Carrying amount of machine 6,500,000 Deferred Loss on sale and leaseback 1,500,000 Amortization of deferred loss for 2015 1,500,000 2 years 750,000

6. On December 31, 2015, Star Apple Company sold a machine with 12-year useful