a. 5,875,000 c. 4,275,000
b. 6,375,000 d. 4,775,000
Q2: What is the unearned interest income on January 1, 2016? a. 10,125,000
c. 9,625,000 b. 11,725,000
d. 8,525,000
Q3: What is the interest income for 2016? a. 2,082,500
c. 2,306,500 b. 1,732,500
d. 1,956,500
Answer is a,a,b
Solution:
Sale Price 14,875,000
Cost of good sold 8,500,000
Initial direct cost 500,000
Gross profit on sale 5,875,000
Gross rentals 2,500,000 x 10 25,000,000
Present value of rentals – equal to sale price 14,875,000
Unearned Interest Income – January 1, 2016 10,125,000
Present value of rentals 14,875,000
Advance rental payments on January 1, 2016 2,500,000
Lease Receivable – January 1, 2016 12,375,000
Interest Income for 2016 12,375,000 x 14 1,732,500
3. HunterXHunter Company used leases as a method of selling products. In 2016,
the entity completed construction of a passenger ferry. On January 1, 2016, the ferry was leased to the OnePunch-Ferry Line on a
contract specifying that ownership of the ferry will transfer to the lessee at the end of the lease period. Annual lease payments do not include executor
costs. Original cost of the ferry
8,000,000 Fair value of ferry at lease date
12,555,000 Lease payments payable in advance
1,500,000 Estimated residual value
2,000,000 Implicit interest rate
12 Date of first lease payment
January 1, 2016 Lease term
20 years
Present value of an annuity due of
1 at 10 for 20 periods 8.37
Present value of 1 at 12 for 20 periods 0.10
Q1: What is the unearned interest income on January 1, 2016? a. 17,445,000
c. 19,445,000 b. 19,245,000
d. 22,000,000
Q2: What is the gross profit on sale for 2016? a. 6,555,000
c. 4,755,000 b. 4,555,000
d. 4,355,000
Q3: What is the interest income for 2016? a, 1,506,600
c. 1,326,600 b. 1,524,600
d. 1,350,600
Answer is a,b,c
Solution: Gross rentals 1,500,000 x 20
30,000,000 PV of fair value of asset 1,500,000 x 8.37
12,555,000 Unearned interest income – January 1, 2016
17,445,000 Fair value of asset – sales revenue
12,555,000 Cost of goods sold
8,000,000 Gross profit on sale
4,555,000 PV of rentals equal to the fair value of asset
12,555,000 Payment on January 1, 2016 – all applicable to principal
1,500,000
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
