lease. Both the lessor and lessee used 10 as the interest rate. The PV of 1 at 10 for
5 periods is .62, and the PV of an ordinary annuity of 1 at 10 for 5 periods is 3.79.
What is the lease receivable of the lessor and lease liability of the lessee at the commencement of the lease?
Lease Receivable Lease Liability
a. 894,400 894,400
b. 758,000 758,000
c. 894,400 758,000
d. 758,000 894,000
Answer is c
Solution:
Lessor
Present value of rentals 200,000 x 3.79
758,000
Guaranteed residual value 220,000 x .62
136,400 Lease receivable
894,400
Lessee
Lease Liability 200,000 x 3;79 758,000
3. Kaleidoscope Company had an asset costing P3,912,500. The asset is leased on
January 1, 2015 to another entity. Five annual lease payments are due each January 1, beginning January 1, 2015. The lessee guaranteed P1,000,000
residual value of the asset as of the end of the lease term on December 31, 2019. The implicit interest rate is 8. The PV of 1 at 8 for 5 periods is .68, and
the PV of an annuity of 1 in advance at 8 for periods is 4.31.
What is the annual lease payment? a. 680,000
c. 675,754 b. 907,773
d. 750,000
Answer is d
Solution:
Cost of asset 3,912,500
PV of guaranteed residual value 1,000,000 x .68 680,000
Net investment to be recovered from rentals 3,232,500
Divide by PV of an annuity of 1 in advance at 8
for 5 periods 4.31
Annual lease payment 750,000
4. Peregrine Company decided to enter the leasing business. The entity acquired a
specialized packaging machine for P4,600,000. On January 1, 2015, the entity leased the machine for a period of six years, after which title to the machine is
transferred to the lessee.
The six annual lease payments are due each January 1 and the first payment was made on January 1, 2015. The residual value of the machine is P500,000.
The lease terms are arranged so that a return of 12 is earned by Irene Company. The present value of 1 at 12 for six periods is 0.51, and the present
value of an annuity in advance of 1 at 12 for six periods is 4.60.
What is the annual lease rental payable in advance required to yield the desired return?
a. 1,000,000 c. 745,000
b. 891,304 d. 1,255,000
Answer is a
Solution:
Cost of asset 4,600,000
Divide by PV of an annuity in advance of 1 at
12 for six periods 4.60
Annual Lease Payment 1,000,000
5. On January 1, 2015, Abram Company signed a ten-year noncancelable lease
agreement to lease a storage building from Lot Company. The agreement required equal rental payments at the end of each year. The fair value of the
building on January 1, 2015 is P3,871,350. However, the carrying amount to Lot Company is P3,568,000.
The building has an estimated economic life of 10 years with no residual value. At the termination of the lease, the title to the building will be transferred to
Abram Company.
The incremental borrowing rate of Abram Company is 12 per year. Lot Company set the annual rental to insure a 10 rate of return. The implicit rate of
the lessor is known by the lessee.
The annual total lease payment included P20,000 of executor costs related to taxes on the property. Round off present value factor to three decimal places.
Q1: What is the minimum annual lease payment?
a. 580,635 c. 600,000
b. 630,000 d. 589,400
Q2: What is the total annual lease payment?
a. 680,635 c. 620,000
b. 650,000 d. 619,400
Answer is b,b
Solution:
a. Fair Value 3,871,350
Divide by PV of an ordinary annuity of 1 at 10
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
