Lease receivable – January 1, 2016 11,055,000
Interest income for 2016 11,055,000 x 12 1,326,600
4. TenTen Company is a car dealer. On January 1, 2016, the entity entered into a
finance lease with a customer under which the customer would pay P200,000 on January 1 each year for 5 years, commencing in 2016. The cost of the car is
P1,200,000 and the cash selling price was P1,500,000. The entity paid legal fees of P100,000 to a law firm in connection with the arrangement of lease.
What amount of gross profit on sale should be recognized for 2016? a. 200,000
c. 80,000 b. 180,000
d. 0
Answer is b
Solution: Sales revenue
1,500,000 Cost of goods sold
1, 200,000 Legal fees – initial direct cost
100,000 Gross profit on sale
200,000
5. PotPot Company used leases as a means of marketing its products. On January
1, 2016, PotPot leased an equipment to Pess Company for P500,000 per year for 10 years, payable on December 31 of each year. The cost of the equipment is
P2,000,000 and the fair value is P3,072,500 on January 1, 2016 using an implicit rate of 10.
The fair value of the equipment approximated the present value of rentals. At the expiration of the lease, title to the equipment passes to Pess Company.
What is the interest income for 2016? a. 200,000
c. 307,250 b. 192,750
d. 257,250
Answer is c
Solution: Interest income for 2016 10 x 3,072,500
307,250
SALES AND LEASEBACK 1. Reddit Company sold an item of plant and machinery on January 1, 2015 for
P5,200,000 which is equal to fair value. The carrying amount of the asset was P3,500,000. The entity leased the item back on that date for remaining useful life
of 5 years. Lease payments are P1,540,000 on January 1 each year.
Q1: What is the gain on disposal to be recognized for 2015? a. 400,000
c. 700,000 b. 340,000
d. 0
Q2: What is the total finance charge over the lease term? a. 2,500,000
c. 700,000 b. 1,700,000
d. 0
Answer is b,a
Solution: Sale Price
5,200,000 Carrying Amount
3,500,000 Deferred Gain – January 1, 2015
1,700,000 Realized gain on disposal for 2015 1,700,000 5
340,000
Gross rentals 1,540,000 x 5 7,700,000
Present value of rentals equal to fair value of asset 5,200,000
Total finance charge 2,500,000
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
