Professional Documents
Culture Documents
LEASES
4-1.
PROBLEMS
(Hope Manufacturing Company and Charity Co.)
(1)
Lessors Books (Hope Manufacturing Co.)
2012
Jan. 1
1
1
Dec. 31
2013
Jan. 1
Dec. 31
2,200,000
2,200,000
600,000
400,000
200,000
60,000
60,000
212,000
200,000
12,000
400,000
400,000
212,000
200,000
12,000
Jan. 1
Rent expense
Prepaid rent
Cash
400,000
200,000
Rent expense
Cash
400,000
600,000
2011
Jan. 1
(b)
400,00
Hope
Charity
400,000
212,000
Hope
2,048,000
200,000
400,000
Charity
Prepaid rent
200,000
Chapter 4 Leases
4-2.
(Blessed Realty)
(7,500 x 4) + (10,000 x 3) + (12,000 x 3) + (15,000 x
a.
2)
126,000
Total lease period
12 mos.
Monthly rent expense
10,500
No. of mos. From Sept. 1 Dec. 31, 2012
x4
Rent expense for 2012
42,000
b.
4-3.
42,000
30,000
12,000
(Faith Company)
a.
Monthly rental payment
No. of payments (60-6 mos free)
Total payments
Rent expense for 2012 (540,000 x 4/60)
or
Monthly rental
Less lease bonus (60,000/60 mos)
Rent expense per month
Rent expense for 2012 (9,000 x 4)
10,000
x 54
540,000
36,000
10,000
(1,000)
9,000
36,000
108,000
Faith Company
2012
Mar. 1 -
36,000
36,000
9,000 x 4 = 36,000
10,000
10,000
8,000
8,000
Love Corporation
2012
Mar. 1 -
36,000
36,000
Cash
Rent revenue
10,000
10,000
4
3
Chapter 4 Leases
Dec. 31
4-4.
8,000
960,000
50,000
25,000
1,035,000
(Truth Corporation)
a.
Rent revenue (920,000 x 9/12)
Depreciation expense
3,500,000/6 = 583,333; 583,333 x 9/12
Maintenance and other related costs
Income before income tax
b.
4-6.
8,000
(Way Company)
a.
Fixed annual rental
Additional rent 5% x (6M-5M)
Amortization of lease bonus (125,000/5
years)
Rent expense for 2012
b.
4-5.
Rent receivable
Rent revenue
100,000
102,450
690,000
(437,500)
(50,000)
202,500
690,000
(Provident Company)
Lessors Books
2012
July 1
Oct.
1
1
Nov.
1
Dec.
1
31
31
1,500,000
1,500,000
Cash
Rent revenue
54,000
Cash
Rent revenue
30,000
Cash
Rent revenue
30,000
Cash
Rent revenue
30,000
Rent revenue
Unearned rent revenue
54,000 x 33/36 = 49,500
49,500
Depreciation expense
Accumulated depreciation
(1,500,000 / 10) x 6/12
75,000
54,000
30,000
30,000
30,000
49,500
75,000
4
4
Chapter 4 Leases
Lessees Books
2012
Oct. 1
1
Nov. 1
Dec. 1
31
4-7.
Rent expense
Cash
54,000
Rent expense
Cash
30,000
Rent expense
Cash
30,000
Rent expense
Cash
30,000
Prepaid rent
Rent expense
49,500
(Generous, Inc.)
260,000 x 4.2397
200,000 x 0.6499
Total capitalized cost
(1)
54,000
30,000
30,000
30,000
49,500
1,102,32
2
129,980
1,232,30
2
Amortization Table
Total Annual
Interest
Date
Payment
Expense
01/01/12
01/01/12
260,000
01/01/13
260,000
87,507
01/01/14
260,000
71,983
01/01/15
260,000
55,061
01/01/16
260,000
36,617
12/31/16
200,000
16,530*
*Adjusted; difference is due to rounding off.
(b)
Reduction in
Principal
260,000
172,493
188,017
204,939
223,383
183,470
Lease
Obligation
1,232,302
972,302
799,809
611,792
406,853
183,470
-
2012
Jan. 1
1
Dec. 31
31
Leased automobile
Finance lease obligation
Finance lease obligation
Cash
Interest expense
Interest Payable
1,232,302
1,232,302
260,000
260,000
87,507
87,507
Depreciation expense
Accumulated depreciation
(1,232,302-200,000)/5
206,460
172,493
87,507
206,460
2013
Jan. 1
Dec. 31
31
Interest expense
Interest payable
Depreciation expense
Accumulated depreciation
260,000
71,983
71,983
206,460
206,460
45
Chapter 4 Leases
(c)
Dec. 31 Accumulated
depreciation
Interest expense
Finance lease
obligation
Leased automobile
1,032,300
16,532*
183,470
1,232,302
4-8.
(Diana Corporation)
(a)
86,680 x 4.1699
(b)
50,000
1,032,300
16,532
183,470
1,232,302
50,000
=
361,447
Amortization
Table
Interes
t
Expens
Date
Payment
e
01/01/12
01/01/12
86,680
01/01/13
86,680
27,477
01/01/14
86,680
21,556
01/01/15
86,680
15,044
01/01/16
86,680
7,876*
*Adjusted; difference is due to rounding off.
Total Annual
Reduction in
Lease
Principal
86,680
59,203
65,124
71,636
78,804
Obligation
361,447
274,767
215,564
150,440
78,804
-
(c)
2012
Jan
1
1
Dec. 31
31
2013
Jan. 1
Dec. 31
31
Leased machine
Finance lease obligation
361,447
361,447
86,680
Interest expense
Interest payable
27,477
Depreciation expense
Accumulated depreciation
361,447/5 years
72,289
59,203
27,477
Interest expense
Interest payable
21,556
Depreciation expense
Accumulated depreciation
72,289
86,680
27,477
72,289
86,680
21,556
72,289
46
Chapter 4 Leases
(d)
Statement of Financial Position
Property, plant and equipment
Leased machine
Accumulated depreciation
Current liabilities:
Interest payable
Finance lease obligation
2012
Noncurrent liabilities:
Finance lease obligation
Income Statement
Interest expense
Depreciation expense
4-9.
2013
361,447
72,289
361,447
144,578
27,477
59,203
21,556
65,124
215,564
150,440
27,477
72,289
21,556
72,289
(Riza, Inc.)
(1)
(b)
Date
12/31/12
12/31/12
12/31/13
12/31/14
(c)
Total Annual
Payment
135,000
135,000
135,000
Interest
Expense
87,684
82,952
Reduction in
Principal
135,000
47,316
52,048
Lease
Obligation
1,011,840
876,840
829,524
777,476
P64,789
(d)
12/31/12
12/31/13
(5)
Leased
equipment
Finance lease obligation
1,011,840
1,011,840
135,000
47,316
87,684
Depreciation expense
Accumulated depreciation
(1,011,840 40,000) / 15
64,789
135,000
135,000
64,789
P 47,316
829,524
605,595
136,176
741,771
47
Chapter 4 Leases
(b)
Date
01/01/12
01/01/12
01/01/13
01/01/14
01/01/15
01/01/16
12/31/16
Total Annual
Payment
150,000
150,000
150,000
150,000
150,000
240,000
Interest
Expense
71,013
61,534
50,918
39,028
25,736*
Reduction in
Principal
150,000
78,987
88,466
99,082
110,972
214,264
Lease
Obligation
741,771
591,771
512,784
424,318
325,236
214,264
-
(c)
741,771 / 15 years
P49,451
(d)
2012
Jan. 1
1
Dec. 31
31
Leased machinery
Finance lease obligation
741,771
150,000
741,771
150,000
Interest expense
Interest payable
71,013
Depreciation expense
Accumulated depreciation
49,451
78,987
71,013
Interest expense
Interest payable
61,534
Depreciation expense
Accumulated depreciation
49,451
71,013
49,451
2013
Jan. 1
Dec. 31
31
(e)
Dec. 31
(f)
Dec. 31
150,000
61,534
49,451
Interest expense
Finance lease obligation
Accumulated depreciation
Machinery
Leased machinery
Cash
25,736
214,264
247,255
494,516
Interest expense
Finance lease obligation
Accumulated depreciation
Loss on finance lease
Leased machinery
25,736
214,264
247,255
254,516
741,771
240,000
741,771
48
Chapter 4 Leases
(1)
(b)
P4,429,740
P 442,974
(c)
2010
Buildin
g
Finance lease obligation
July 1
July 1
Dec. 31
4,429,740
50,000
700,000
750,000
Interest expense
Interest payable
447,569 x
6/12
223,784
Depreciation expense-Building
Accum. Depreciation-Building
221,487
25,000
31
31
4,429,740
223,784
221,487
25,000
2011
July 1
Dec. 31
31
Date
July 1, 2012
July 1, 2012
July 1, 2013
July 1, 2014
50,000
223,784
223,785
Interest expense
Interest payable
417,277 x
6/12
208,639
Depreciation expense
Accum. Depreciation-building
442,974
252,431
750,000
208,639
442,974
Amortization Table
Periodic
Applied to
Payment
Interest
Principal
P700,000
700,000
700,000
P447,569
417,277
P700,000
252,431
282,723
Balance of
Principal
P4,429,740
3,729,740
3,477,309
3,194,586
49
Chapter 4 Leases
Finance lease
receivable
Equipment for
lease
Unearned interest revenue
Aug. 1
1
1
Dec. 31
605,000
480,000
125,000
1,900
Cash
Finance lease receivable
100,000
1,900
100,000
15,912
15,912
Partial Amortization
Table
Periodic
Payment
Date
08/01/12
08/01/12
08/01/13
(2)
Reduction in
Principal
100,000
61,810
Interest
38,190
100,000
100,000
Balance of
Principal
481,900
381,900
320,090
P505,000
107,188
P397,812
Current
P100,00
0
22,278
P
77,722
Non-current
P405,00
0
84,910
P320,09
0
P
61,810
15,912
Periodic
Payment
Interest
Reduction in
Principal
P600,00
0
24,836
P575,16
4
4.1699
P137,93
2
Balance of
Principal
P600,000
P137,932
137,932
P137,932
P46,207
91,725
462,068
370,343
Jan. 1,
2014
137,932
37,034
100,898
269,445
50
Chapter 4 Leases
(1)
2012
600,000
600,000
137,932
137,932
46,207
46,207
165,714
165,714
2013
Jan. 1
91,725
46,207
137,932
37,034
37,03
4
Interest payable
Depreciation expense
Accum. depr. Leased
equipment
138,095
138,095
Jan. 1
729,660
Cash
137,932
600,000
129,660
137,932
46,207
46,20
7
Interest revenue
2013
Jan. 1 Cash
Finance lease receivable
Dec 31 Unearned interest revenue
Interest revenue
137,932
137,932
37,034
37,03
4
(2)
The
rate
is
approximately
8%.
The
PV
factor
is
P539,730/80,000 = 6.7466; in line 9 (which is 8 annual
payments of P80,000 + 1 payment for guaranteed residual
value of same amount), the corresponding interest rate is 8%.
51
Chapter 4 Leases
(c)
Partial amortization table
Date
April 1, 2012
April 1, 2012
April 1, 2013
April 1, 2014
Periodic
Payment
Interest
Reduction in
Principal
80,000
80,000
80,000
36,778
33,321
80,000
43,222
46,679
Balance of
Principal
P539,730
459,730
416,508
369,829
Ironman
2012
Apr. 1
1
Dec. 31
31
Equipment
Finance lease obligation
539,730
539,730
80,000
Interest expense
Interest payable
36,778 x 9/12
27,584
Depreciation expense
Accumulated depreciation
(539,730-80,000)/8 = 57,466
57,466 x 9/12 = 43,100
43,100
9,194
27,584
43,222
Interest expense
Interest payable
33,321 x 9/12
24,991
Depreciation expense
Accumulated depreciation
(539,730-80,000)/8 = 57,466
57,466
80,000
27,584
43,100
2013
Apr. 1
Dec. 31
31
80,000
24,991
57,466
52
Chapter 4 Leases
Apr. 1
Dec. 31
720,000
180,270
539,730
80,000
80,000
27,584
27,584
2011
Apr. 1
1
Cash
Finance lease receivable
Unearned interest revenue
Interest revenue
Dec. 31
80,000
80,000
9,194
9,194
24,991
24,991
(5)
(6)
Sales price
Cost of machine
Gross profit
(b)
(3)
1,011,84
0
784,500
227,340
1,620,00
0
1,011,84
0
608,160
(d)
43,84
2
1,485,00
0
564,31
8
920,68
2
53
Chapter 4 Leases
Finance lease
receivable
Cost of sales
Unearned interest revenue
Sales
Finished goods inventory
Apr. 1
1,500,000
893,350
426,380
1,026,970
940,000
175,000 x 8 = 1,400,000
1,400,000 + 100,000 =
1,500,000
940,000(100,000 x0.4665)=893,350
175,000 x 5.8684 = 1,026,970
100,000 x 0.4665 = 46,650
1,026,970 + 46,650 =
1,073,620
1,500,000 1,073,620 =
426,380
1
Dec. 31
2013
Cash
Finance lease receivable
Unearned interest revenue
Interest revenue
89,862 x 9/12
Jan. 1
Dec. 31
175,000
67,397
67,397
Interest revenue
Unearned interest revenue
Apr. 1
175,000
Cash
Unearned interest revenue
Finance lease receivable
Interest revenue
Unearned interest revenue
Interest revenue
67,397
67,397
175,000
89,862
175,000
89,862
61,011
61,011
81,348 x 9/12
Partial amortization
table
Date
April 1, 2012
April 1, 2012
April 1, 2013
April 1, 2014
Periodic
Payment
Interest
Reduction in
Principal
175,000
175,000
175,000
89,862
81,348
175,000
85,138
93,652
Cost of sales
Finished goods inventory
Finance lease
receivable
Cost of sales
Unearned interest revenue
Balance of
Principal
P1,073,620
898,620
813,482
719,830
1,026,970
373,030
940,000
940,000
100,000
46,650
53,350
54
Chapter 4 Leases
(b)
(i)
Sales
Cost of Sales (940,000 46,650)
Gross profit on sales
Interest Revenue for 2012 (see journal
entries)
(ii)
(c)
4-17
1,026,970
893,350
133,620
67,397
1,073,620
940,000
Ruby Company
1.
Manufacturers or dealers lease, because FV exceeds CV.
The difference represents gross profit, which characterizes
a dealers or manufacturers lease.
Present value of MLP = 850,365 x
4.6048
P3,914,080
Present value of residual value = 166,300 x .5066
84,248
Total present
value
P3,998,328
Carrying value of leased asset
3,200,000
Gross Profit
P 798,328
Lease arrangement cost
( 85,000)
Interest income 377,756 x 3/12
94,439
Total income in
2012
P 807,767
Amortization
Table
b.
c.
Date
Oct.
Oct.
Oct.
Oct.
1,
1,
1,
1,
2012
2012
2013
2014
Periodic
Payment
Interest
Reduction in
Principal
P850,365
850,365
850,365
P377,756
321,042
P850,365
472,609
529,323
Balance of
Principal
P3,998,32
8
3,147,963
2,675,354
2,146,031
2012
Oct.
1
5,268,490
3,115,752
3,200,000
3,914,080
1,270,162
85,000
85,000
850,365
Oct.
1
Cash
850,365
94,439
94,439
850,365
850,365
363,578
Interest revenue
(377,756 94,439) + (321,042 x 3/12)
363,578
55
Chapter 4 Leases
4.
Periodic
Payment
Interest
Reduction in
Principal
850,365
850,365
850,365
367,646
309,720
850,365
482,719
540,645
Balance of
Principal
P3,914,080
3,063,715
2,580,996
2,040,351
2012
Oct. 1
Dec 31 Interest
expense
31
Depreciatio
n expense
Leased
equipment
Finance
lease
obligati
on
Finance lease
obligation
Cash
3,914,080
3,914,080
850,365
850,365
91,912
Interest
payable
3
6
7,
6
4
6
x
3/
1
2
=
9
1,
9
1
2
91,912
163,087
Accumul
ated
deprecia
tion
3,
9
1
4,
0
8
0/
6
x
3/
1
2
163,087
2013
Oct. 1
Interest
91,912
Dec31
4-18
payable
Interest
expense
367,646
91,912
Finance lease
obligation
Cash
Interest
expense
Interest
payable
3
0
9,
7
2
0
x
3/
1
2
Depreciation
expense
Accumul
ated
deprecia
tion
275,734
482,719
850,365
77,430
77,430
652,347
652,347
(Metro Industries)
605,595
193,845
121,119
54,671
38,769
56
Chapter 4 Leases
July
July
Dec. 31
1 Cash
Accumulated depreciation
Equipment
Gain on sale leaseback
1 Rent expense
Cash
Prepaid rent
Rent expense
540,000
350,000
800,000
90,000
80,000
80,000
40,000
40,000
(b)
2012
July
1 Cash
Accumulated depreciation
Equipment
Gain on sale leaseback
Unearned profit on sale
leaseback
1 Rent expense
Cash
Dec. 31
Prepaid rent
Rent expense
31 Unearned profit on sale leaseback
Profit on sale leaseback
540,000
350,000
800,000
50,000
40,000
80,000
80,000
40,000
40,000
5,000
5,000
(40,000/4) x 6/12
(c)
2012
July
1 Cash
Accumulated depreciation
Loss on sale leaseback
Equipment
1 Rent expense
Cash
Dec. 31
Prepaid rent
Rent expense
400,000
350,000
50,000
800,000
80,000
80,000
40,000
40,000
57
Chapter 4 Leases
(d)
2012
July
Cash
Accumulated depreciation
Deferred loss on sale leaseback
Equipment
1 Rent expense
Cash
800,000
80,000
80,000
40,000
40,000
12,500
12,500
Theor
y
MC1
MC2
MC3
MC4
MC5
MC6
MC7
MC8
MC9
MC10
MC11
MC12
350,000
350,000
100,000
B
A
C
D
D
D
A
C
C
A
C
A
MC13
MC14
MC15
MC16
MC17
MC18
MC19
MC20
MC21
MC22
MC23
MC24
B
B
A
C
C
A
C
C
B
A
A
C
Problems
MC25
MC26
MC27
MC28
MC29
MC30
C
C
D
D
C
B
MC31
MC32
B
D
MC33
MC34
A
B
MC35
MC36
MC37
MC38
MC39
MC40
MC41
B
D
D
C
A
D
MC42
58
Chapter 4 Leases
MC43
MC44
MC45
C
A
MC46
MC47
MC48
MC49
A
D
MC50
MC51
C
D
MC52
MC53
MC54
MC55
MC56
A
B
MC57
MC58
MC59
MC60
59