Intermediate accounting by robles empleo 1 answers v2chapter 4 2012

CHAPTER 4
LEASES
4-1.

PROBLEMS
(Hope Manufacturing Company and Charity Co.)
(a)
Lessor’s Books (Hope Manufacturing Co.)
2012

Jan. 1
1

1
Dec. 31

Machinery for lease
Cash
Cash
Rent revenue
Unearned rent revenue
2 M/5 = 400,000
2 M x 30% = 600,000
Machinery for lease
Cash

2,200,000
2,200,000
600,000
400,000
200,000

60,000
60,000

Depreciation expense
Accumulated depreciation
Machine for lease
(2.2 M – 200,000)/10 200,000
60,000 / 5 years
12,000
Total
212,000

212,000

Cash
Rent revenue
2,000,000 x 20%

400,000

Depreciation expense
Accumulated depreciation
Machine for lease

212,000

200,000
12,000

2013

Jan. 1

Dec. 31

400,000

200,000
12,000

Lessee’s Books (Charity Co.)
2010

Jan. 1

Rent expense
Prepaid rent
Cash

400,000
200,000

Rent expense
Cash

400,000

600,000

2011

Jan. 1

400,00

(b)
Statement of Comprehensive Income:
(In profit or loss section)
Rent revenue
Depreciation expense
Rent expense
Statement of Financial Position
Machine for lease, net of accum.
depreciation
Unearned rent revenue
Prepaid rent

Hope

Charity

400,000
212,000
Hope

400,000
Charity

2,048,000

200,000
200,000


Chapter 4 – Leases

4-2.

(Blessed Realty)
a.
(7,500 x 4) + (10,000 x 3) + (12,000 x 3) + (15,000 x 2)
Total lease period
Monthly rent expense
No. of mos. From Sept. 1 – Dec. 31, 2012
Rent expense for 2012
b.

4-3.

Rent expense for 2012
Rent payments made during 2012
Rent payable at December 31, 2012

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

Rent expense for 2013 (9,000 x 12)
(b)

126,000
÷ 12 mos.
10,500
x4
42,000

108,000

Faith Company

2012

Dec. 31
2013

Mar. 1 -

Dec. 31

Rent expense
Rent payable

36,000
36,000

9,000 x 4 = 36,000

Dec. 1 monthly entry
Rent expense
Cash

10,000
10,000

Rent expense
Rent payable

8,000
8,000

Rent expense for 2012:
540,000 x 12/60
108,000
Payments in 2012
100,000
Increase in rent payable 8,000

Love Corporation
2012

Dec. 31

Rent receivable
Rent revenue

36,000
36,000

2013

Mar. 1 -

Dec. 1 monthly entry
Cash
Rent revenue

10,000
10,000

43


Chapter 4 – Leases

Dec. 31

4-4.

8,000

960,000
50,000
25,000
1,035,000

Prepaid rent expenss (125,000 – 25,000)
Security deposit (discounted for 4 years at 10%)
150,000 x 0.6830

100,000
102,450

(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

690,000
(437,500)
(50,000)
202,500

Rent expense (920,000 x 9/12)

690,000

(Provident Company)
Lessor’s Books

2012

July 1
Oct. 1
1
Nov. 1
Dec. 1
31

31

Equipment for lease
Cash

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

44

49,500

75,000

Chapter 4 – Leases

Lessee’s 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

54,000
30,000
30,000

30,000
49,500

(Generous, Inc.)
260,000 x 4.2397
200,000 x 0.6499
Total capitalized cost
(a)

1,102,322
129,980
1,232,302

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.

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
-

(b)
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

Finance lease obligation
Interest payable
Cash

172,493
87,507

206,460

2013

Jan. 1

Dec. 31
31

Interest expense
Interest payable

260,000

71,983
71,983

Depreciation expense
Accumulated depreciation

45

206,460
206,460


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

*adjusted; balancing figure
(d)
Dec. 31

4-8.

Loss on finance lease
Accumulated depreciation
Interest expense
Finance lease obligation
Leased automobile
Cash

50,000
1,032,300
16,532
183,470
1,232,302
50,000

(Diana Corporation)
(a)
86,680 x 4.1699
(b)

=

361,447

Amortization Table
Total Annual
Payment

Interest
Date
Expense
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.

Reduction in
Principal
86,680
59,203
65,124
71,636
78,804

Lease
Obligation

361,447
274,767
215,564
150,440
78,804
-

(c)
2012

Jan

1
1

Dec. 31
31

Leased machine
Finance lease obligation

361,447
361,447

Finance Lease Obligation
Cash

86,680

Interest expense

Interest payable

27,477

Depreciation expense
Accumulated depreciation
361,447/5 years

72,289

Finance lease obligation
Interest payable
Cash

59,203
27,477

Interest expense
Interest payable

21,556

Depreciation expense
Accumulated depreciation

72,289

86,680
27,477
72,289

2013

Jan. 1

Dec. 31
31

86,680
21,556

46

72,289


Chapter 4 – Leases

(d)
Statement of Financial Position
Property, plant and equipment
Leased machine
Accumulated depreciation
Current liabilities:
Interest payable
Finance lease obligation
Noncurrent liabilities:
Finance lease obligation
Income Statement
Interest expense

Depreciation expense
4-9.

2012

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.)

(a)
1,011,840/135,000 = 7.4951 PV of an annuity due for 12 periods
From Table VI across 12 periods, 7.4951 is under 10% interest rate.
(b)
Date
12/31/12
12/31/12
12/31/13
12/31/14

(c)

135,000
135,000
135,000

Interest
Expense
87,684
82,952

Reduction in
Principal
135,000
47,316
52,048

(1,011,840 – 40,000) / 15 years

(d)

12/31/12

12/31/13

(e)

Total Annual
Payment

Leased equipment
Finance lease obligation

P64,789
1,011,840
1,011,840

Finance lease obligation
Cash

135,000

Finance lease obligation
Interest expense
Cash

47,316
87,684

Depreciation expense
Accumulated depreciation

(1,011,840 – 40,000) / 15

64,789

Lease obligation as of December 31, 2012:
Current portion
Noncurrent portion

4-10. (Shirley Corporation)
(a)
150,000 x 4.0373
240,000 x 0.5674
Total capitalized cost

605,595
136,176
741,771

47

Lease
Obligation
1,011,840
876,840
829,524
777,476

135,000

135,000

64,789

P 47,316
829,524


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
-

*Adjusted; difference is due to rounding off.

(c)

741,771 / 15 years

P49,451

(d)
2012

Jan. 1
1
Dec. 31
31

Leased machinery
Finance lease obligation

741,771

Finance lease obligation
Cash

150,000

741,771
150,000

Interest expense
Interest payable

71,013

Depreciation expense
Accumulated depreciation

49,451

Finance lease obligation
Interest payable
Cash

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

48

741,771
240,000

741,771


Chapter 4 – Leases

4-11. (Sam Company)
(a)
(b)

Present value of minimum lease payments
700,000 x 6.3282

P4,429,740

Annual depreciation (4,429,740/10)

P 442,974

(c)
2010

July 1

July 1

Dec. 31

31
31

Building
Finance lease obligation

4,429,740
4,429,740

Taxes and insurance expense
Finance lease obligation
Cash

50,000
700,000

Interest expense
Interest payable
447,569 x 6/12

223,784

Depreciation expense-Building
Accum. Depreciation-Building

221,487

Prepaid taxes and insurance
Taxes and insurance expense

25,000

750,000
223,784

221,487
25,000

2011

July 1

Dec. 31

31

Taxes and insurance expense
Interest payable
Interest expense
Finance lease obligation
Cash

50,000
223,784
223,785
252,431

Interest expense
Interest payable
417,277 x 6/12

208,639

Depreciation expense
Accum. Depreciation-building

442,974

Date
July 1, 2012
July 1, 2012
July 1, 2013
July 1, 2014

750,000
208,639

442,974

Amortization Table
Periodic
Applied to
Payment
Interest
Principal
P700,000

700,000
700,000

P447,569
417,277

49

P700,000
252,431
282,723

Balance of
Principal
P4,429,740
3,729,740
3,477,309
3,194,586


Chapter 4 – Leases

4-12. (Joy Company)
a.
2012

Aug. 1

1
1

Dec. 31

Finance lease receivable
Equipment for lease
Unearned interest revenue

605,000
480,000
125,000

Unearned interest revenue
Cash

1,900

Cash
Finance lease receivable

100,000

Unearned interest revenue
Interest revenue
38,190 x 5/12

15,912

1,900
100,000
15,912

Partial Amortization Table
Date
08/01/12
08/01/12
08/01/13

(b)

Periodic
Payment
100,000
100,000

Interest
38,190

Reduction in
Principal
100,000
61,810

As of December 31, 2012:
Total
Current
Finance lease receivable
P505,000
P100,000
Unearned interest revenue
107,188
22,278

P397,812
P 77,722
Current portion:
Principal due in 2013
Accrued interest, 12/31/12 (38,190 x 5/12)

4-13.

Balance of
Principal
481,900
381,900
320,090

Non-current
P405,000
84,910
P320,090
P 61,810
15,912

(Jackie Chan and Chris Tucker)
Annual Lease Payment:
Fair value of asset
PV of BPO = 40,000 x .6209
PV of periodic payment
PV factor (Annuity due for 5 years at 10%)
Periodic payment
Date
Jan. 1, 2012

Jan. 1, 2012
Jan. 1, 2013
Jan. 1, 2014

P600,000
24,836
P575,164
÷4.1699
P137,932

Periodic
Payment

Interest

Reduction in
Principal

P137,932
137,932
137,932

P46,207
37,034

P137,932
91,725
100,898

Depreciable cost = P600,000 – P20,000 = P580,000

2012 Depreciation = P580,000 x 6/21 = P165,714
2013 Depreciation = P580,000 x 5/21 = 138,095

50

Balance of
Principal
P600,000
462,068
370,343
269,445


Chapter 4 – Leases

(a)

Books of Chris Tucker

2012

Jan. 1 Leased equipment
Finance lease obligation
1 Finance lease obligation
Cash

600,000
600,000
137,932
137,932

Dec 31 Interest expense
Interest payable

46,207
46,207

31 Depreciation expense – Leased equipment
Accum. depr. – Leased equipment

165,714
165,714

2013

Jan. 1 Finance lease obligation
Interest payable
Cash

91,725
46,207

Dec 31 Interest expense
Interest payable

37,034

137,932
37,034

Depreciation expense
Accum. depr.– Leased equipment

138,095
138,095

(b) Books of Jackie Chan
2012

Jan. 1 Finance lease receivable
Equipment for lease
Unearned interest revenue
Cash

729,660
600,000
129,660
137,932

Finance lease receivable
Dec 31 Unearned interest revenue
Interest revenue

137,932
46,207
46,207

2013

Jan. 1 Cash

137,932
Finance lease receivable

Dec 31 Unearned interest revenue
Interest revenue

137,932
37,034
37,034

4-14. (Ben Ten and Ironman)
(a)
Direct finance lease
(The cash price equals the carrying value of the asset; hence, there is
no gross profit).
(b)

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

Finance lease obligation
Cash

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

Interest expense (36,778-27,584)
Interest payable
Finance lease obligation
Cash

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

52

57,466


Chapter 4 – Leases

(d) Books of Ben Ten
2012

Apr. 1

Finance lease receivable
Unearned interest revenue
Equipment for lease
80,000x 8 = 640,000;
640,000 + 80,000 GRV = 720,000

1
Dec. 31

720,000
180,270
539,730

Cash
Finance lease receivable

80,000

Unearned interest revenue
Interest revenue

27,584

Cash
Finance lease receivable

80,000

80,000
27,584

2011

Apr. 1
1
Dec. 31

80,000

Unearned interest revenue
Interest revenue

9,194

Unearned interest revenue
Interest revenue
32,893 x 9/12

24,991

9,194
24,991

(e)

The asset shall be recorded at P496,512 which is 80,000 x 6.2064.
Depreciation for 2012 = 496,512/8 x 9/12 = 46,548

(f)

No difference in journal entries. To the lessor, under the direct finance
lease, it does not matter whether the residual value is guaranteed or
unguaranteed.

4-15. (Prudent Company)
(a)

Sales price
Cost of machine
Gross profit

1,011,840
784,500
227,340

(b)

Gross investment (135,000 x 12)
Sales
Total financial revenue over the lease term

(c)

Interest revenue for 2012
(1,011,840 – 135,000) x 10% x 6/12

(d)

Finance lease receivable
Less Unearned interest revenue
Net finance lease receivable, December 31, 2012

53

1,620,000
1,011,840
608,160

43,842
1,485,000
564,318
920,682


Chapter 4 – Leases

4-16. (Glad Manufacturing Company)
(a)
2012

Apr. 1

Finance lease receivable
Cost of sales
Unearned interest revenue
Sales
Finished goods inventory

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

Cash
Finance lease receivable

175,000

Unearned interest revenue
Interest revenue
89,862 x 9/12

67,397

Interest revenue
Unearned interest revenue

67,397

175,000
67,397

2013

Jan. 1
Apr. 1

Dec. 31

67,397

Cash
Unearned interest revenue
Finance lease receivable
Interest revenue

175,000
89,862

Unearned interest revenue
Interest revenue

61,011

175,000
89,862

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

*The compound entry may also be presented as follows:
Apr. 1
Finance lease receivable
1,400,000
Sales
Unearned interest revenue
1
1

Cost of sales
Finished goods inventory

940,000

Finance lease receivable
Cost of sales
Unearned interest revenue

100,000

54

Balance of
Principal
P1,073,620
898,620
813,482
719,830

1,026,970
373,030
940,000
46,650
53,350


Chapter 4 – Leases

(b)

(i)
(ii)

(c)

4-17

Sales
Cost of Sales (940,000 – 46,650)
Gross profit on sales
Interest Revenue for 2012 (see journal entries)

1,026,970
893,350
133,620
67,397

Sales (1,026,970 + 46,650)
Cost of sales (cost of the asset)

1,073,620
940,000

Ruby Company
a.
Manufacturer’s or dealer’s lease, because FV exceeds CV. The
difference represents gross profit, which characterizes a dealer’s or
manufacturer’s lease.
b.

Present value of MLP = 850,365 x 4.6048
Present value of residual value = 166,300 x .5066
Total present value
Carrying value of leased asset
Gross Profit
Lease arrangement cost
Interest income 377,756 x 3/12
Total income in 2012

c.

P3,914,080
84,248
P3,998,328
3,200,000
P 798,328
(
85,000)
94,439
P 807,767

Amortization Table
Date
Oct. 1, 2012
Oct. 1, 2012
Oct. 1, 2013
Oct. 1, 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
P3,998,328
3,147,963
2,675,354
2,146,031

2012

Oct. 1 Finance lease receivable (850,365 x 6) + 166,300
Cost of goods sold (3,200,000 – 84,248)
Inventory

Sales
Unearned interest revenue

5,268,490
3,115,752

1 Selling expense
Cash

3,200,000
3,914,080
1,270,162
85,000
85,000

1 Cash

850,365
Finance lease receivable

Dec. 31

850,365

Unearned interest revenue
Interest revenue

94,439
94,439

2013

Oct. 1 Cash

850,365
Finance lease receivable

850,365

Dec 31 Unearned interest revenue
Interest revenue
(377,756 – 94,439) + (321,042 x 3/12)

55

363,578
363,578


Chapter 4 – Leases

d.

Amortization Table for Emerald
Date
Oct. 1, 2012
Oct. 1, 2012
Oct. 1, 2013
Oct. 1, 2014

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 Leased equipment
Finance lease obligation

3,914,080
3,914,080

Finance lease obligation
Cash

850,365
850,365

Dec 31 Interest expense
Interest payable
367,646 x 3/12 = 91,912
31 Depreciation expense
Accumulated depreciation
3,914,080/6 x 3/12

91,912
91,912
163,087
163,087

2013

Oct. 1 Interest payable
Interest expense 367,646 – 91,912
Finance lease obligation
Cash
Dec31 Interest expense
Interest payable

309,720 x 3/12

91,912
275,734
482,719
850,365
77,430
77,430

Depreciation expense
Accumulated depreciation

652,347
652,347

4-18 (Metro Industries)
Correction to the problem: the equipment’s fair value is P368,606, instead of
P400,000.
(a)
Sales = (99,046 x 3.1699) + (80,000 x.6830) =
P368,606
(b)
Sales
P368,606
Cost of equipment sold
(300,000)
Selling expense
( 15,000)
Interest income (368,606 x 10%)
36,861

Total profit from lease
P 90,467
(c)
Depreciation expense recorded by Western
(368,606 – 80,000) / 4 =
P 72,152
4-19. (Legend Company)
(a)
Selling price of the machinery (150,000 x 4.0373)
(b)
Deferred gain on January 1, 2012 (605,595 – 411,750)
(c)
Depreciation expense for 2012 (605,595 / 5 years)
(d)
Interest expense for 2012 (605,595 – 150,000) x 12%
(e)
Gain on sale-leaseback for 2010 (193,845 / 5 years)

56

605,595
193,845
121,119
54,671
38,769


Chapter 4 – Leases

4-20. (Honest Company)

(a)
2012

July

1

July 1
Dec. 31

Cash
Accumulated depreciation
Equipment
Gain on sale leaseback

540,000
350,000
800,000
90,000

Rent expense
Cash

80,000

Prepaid rent
Rent expense

40,000

80,000
40,000

(b)
2012

July

1

1
Dec. 31
31

Cash
Accumulated depreciation
Equipment
Gain on sale leaseback
Unearned profit on sale leaseback

540,000
350,000
800,000
50,000
40,000

Rent expense
Cash

80,000

Prepaid rent
Rent expense

40,000

80,000
40,000

Unearned profit on sale leaseback
Profit on sale leaseback

5,000
5,000

(40,000/4) x 6/12
(c)
2012

July

1

1
Dec. 31

Cash
Accumulated depreciation
Loss on sale leaseback
Equipment

400,000
350,000
50,000
800,000

Rent expense
Cash

80,000

Prepaid rent
Rent expense

40,000

80,000
40,000

57


Chapter 4 – Leases

(d)
2012

July

1

1
Dec. 31

Cash
Accumulated depreciation
Deferred loss on sale leaseback
Equipment

350,000
350,000
100,000
800,000

Rent expense
Cash

80,000

Prepaid rent
Rent expense

40,000

Rent expense/Loss on sale leaseback

12,500

80,000
40,000

Deferred loss on sale leaseback
100,000 x 6/48 = 12,500

MULTIPLE CHOICE QUESTIONS
Theory
MC1
MC2
MC3
MC4
MC5
MC6
MC7
MC8
MC9
MC10
MC11
MC12

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

A

900,000 + (500,000 / 5 yrs) = 1,000,000
40,000 + (125,000 x 4) = 540,000; 540,000 / 5 yrs = 108,000
This is an operating lease; thus, there is no interest expense involved.
240,000 x 6/12 = 120,000
3,600,000 / 3 yrs = 1,200,000
3,600,000 x 2/3 = 2,400,000; 600,000 + 900,000 = 1,500,000
2,400,000 – 1,500,000 = 900,000
500,000 x 4.61 = 2,305,000
2,305,000 – 500,000 – 283,400 = 1,521,600; 500,000 – (12% x
1,805,000)=283,400
2,305,000 / 6 = 384,167
1,350,000-200,000=1,150,000; 1,150,000 x 10% = 115,000
200,000-115,000 = 85,000
400,000 x 5.95 = 2,380,000
(2,400,000 – 200,000) / 8 yrs = 275,000
(1,742,174 x 3.48685) + (1,200,000 x .68301) = 6,894,311

(6,894,311 – 1,200,000)/4 = 1,423,578
1,742,174 X 3.48685 = 6,074,699
6,074,699/4 = 1,518,675
CV = 6,245,450 – [(6,245,450 – 80,000)/6 X 4 ] = 2,135,150
2,135,150 – 1,250,000 = 885,150
100,000 x 6 = 600,000

58

12,500


Chapter 4 – Leases

MC43

D

MC44
MC45
MC46
MC47
MC48
MC49

C
A
B
D
A

D

MC50
MC51
MC52

C
D
A

MC53

A

MC54

D

MC55
MC56
MC57
MC58

A
B
B
B

MC59
MC60

D
B

100,000 x 4.8 = 480,000; 480,000 – 100,000 = 380,000
380,000 x 10% x 5/12 = 15,833
3,520,000 – 2,800,000 = 720,000
3,520,000 – 600,000 = 2,920,000; 2,920,000 x 10% x 6/12 = 146,000
400,000 – 300,000 – 15,000 + (400,000 X 10%) = 125,000
400,000 – (108,951 – 40,000 interest) = 331,049
323,400 / 4.312 = 75,000; 75,000 x 5 = 375,000; 375,000 – 323,400 = 51,600
98,512 x 10% = 9,851; 30,000-9,851 =20,149; 98,512-20,149=78,363
78,363 x 10% = 7,836
(98,512-5,000) / 4 = 23,378
(30,000 x 2) + 5,000 = 65,000
Initial direct costs increase the net investment in lease recorded by the lessor;
although an unguaranteed residual value is considered by the lessor and not by
the lessee, the terms of the lease already indicated that the residual value is
guaranteed.
This excess over the limited hours should be accrued by the end of 2013, even if
payment would be made at January 1, 2013
550,000 – 400,000 =150,000 ; in the absence of any information, sales price is
presumed to be at fair value.
4,800,000 – 3,600,000 = 1,200,000
1,200,000 /12 x 6/12 = 50,000
150,000 – 100,000 = 50,000; 50,000 x 9/10 = 45,000
800,000 – 710,000 = 90,000 deferred on Mar. 31; 710,000 – 650,000 = 60,000
immediate gain on Mar. 31; 60,000 + [(90,000/12) x 9/12] = 65,625
If selling price is at fair value, full amount of gain is recognized immediately.
Additional information, lease term is 12 years out of total life of 25 years.

Deferred loss = 650,000 – 470,000; amortized loss = (180,000/12) x 9/12 =
11,250; 470,000 – 11,250 = 168,750

59