for ten periods 6.145
Minimum annual lease payment 630,000
b. Minimum annual lease payment 630,000
Executory costs: 20,000
Total annual lease payment 650,000
6. On January 1, 2015, B.I. Company, acting as a lessor, leased an equipment for
ten years at an annual rental of P800,000, payable by H.I. Company, the lessee, at the beginning of each year under a direct financing lease. The equipment had
a cost of P5,600,000 with an estimated life of 12 years and no residual value. The implicit rate is 9.
What amount of interest income should be reported in 2015? a. 800,000
c. 432,000 b. 560,000
d. 610,000
Answer is c
Solution:
Present of rentals equal to the cost of asset 5,600,000
Advance payment on January 1, 2015 800,000
Lease Receivable – January 1, 2015 4,800,000
Interest income for 2015 4,800,000 x 9 432,000
7. Cassandra Company acquired a specialized packaging machine for P5,000,000
cash and leased it for a period of six years, after which the machine is to be returned to Cassandra Company. The unguaranteed residual value of the
machine is P450,000. The lease terms are arranged so that a return of 12 is earned by Cassandra. The PV of 1 at 12 for six periods is .51, and the PV of an
annuity in advance of 1 at 12 for six periods is 4.60.
What is the annual lease payment payable in advance required to yield the desired return?
a. 680,000 c. 852,174
b. 800,000 d. 732,000
Answer is b
Solution: Cost of asset
3,909,500 PV of unguaranteed residual value 450,000 x .51
229,500
Net investment to be recovered from rentals 3,680,000
Divide by PV of an annuity in advance of 1 at 12 4.60
Annual rental payable in advance 800,000
8. Camia Company is in the business of leasing new sophisticated equipment. As lessor, the entity expects a 12 return. At the end of the lease term, the
equipment will revert to Camia Company.
On January 1, 2015 an equipment is leased to another entity under a direct financing lease.
Cost of equipment to Camia 5,500,000
Residual value – unguaranteed 400,000
Annual rental payable in advance 959,500
Useful life and lease term 8 years
Implicit interest rate 12
First lease payment January 1, 2015
Q1: What is the unearned interest income on January 1, 2015?
a. 1,616,500 c. 1,776,000
b. 2,176,000 d. 2,576,000
Q2: What is the interest income for 2015? a. 322,000
c. 660,000 b. 544.860
d. 496,860
Answer is b,b
Solution: a. Gross rentals 959,500 x 8
7,676,000 Residual Value
400,000 Gross Investment
8,076,000 Net investment – equal to the
cost of the equipment 5,500,000
Unearned interest income – January 1, 2015 2,576,000
b. Present value of rentals equal to the cost of the equipment
5,500,000 First Payment on January 1, 2015
959,500 Lease Receivable
4,540,500 Interest Income for 2015 4,540,000 x 12
544,860
SALES TYPE LEASE – LESSOR
1. Dolce Amore Company leased equipment to Faye Company on January 1, 2016.
