Problem 1

1 The lease is a finance lease because the (1) lease term covers a significant portion of economic li
(2) present value of lease payments is substantial compared to fair value; and (3) the lessee has
over the crane.

₱ 50,000 Annual Lease Payments * PV of annuity due at 9% for 5 years

₱ 50,000 * 4.23972 = ₱ 211,986 which is less than ₱ 216,000 (90% * ₱ 240,000)

2 Lessee's Entries (Abriendo Construction)

Right-of-use asset - Crane 211,986
Lease Liability 211,986

Lease Liability 50,000

Cash 50,000

Interest expense 14,579

Lease Liability 14,579

Depreciation expense 39,397

Accumulated Depreciation - Crane 39,397

Lessor's Entries (Cancun Inc.)

Lease receivable 211,986
Loss on lease 28,014
Equipment - crane 240,000

Cash 50,000
Lease receivable 50,000

Lease receivable 14,579

Interest income 14,579
rtion of economic life (5 of 12 years);
(3) the lessee has right-of-use control

Remaining Lease Liability ₱161,986

Interest 9%
₱14,579
(211,986 - 15,000) / 5
Problem 2
3 GRISHELL SHIPPING COMPANY
Schedule to Compute the Discounted Present Value of Terminal Facilities and the Related
January 1 2010

Present value of first 10 payments:

Immediate payment ₱ 800,000.00
Present value of an ordinary annuity for
9 years at 6% (₱ 800,000 * 6.801692) ₱ 5,441,354.00

Present value of last 10 payments:

First payment of ₱ 320,000 ₱ 320,000.00
Present value of an ordinary annuity for
9 years at 6% (₱ 320,000 * 6.801692) ₱ 2,176,541.00
Present value of last 10 payments at
Jan 1, 2020 ₱ 2,496,541.00
Discount to Jan 1, 2010
(₱2,496,541 * 0.558395)
Discounted present value of terminal
facilities and related obligation

4 Year Interest Expense Lease Payment Carrying Value

₱ 6,241,354.00
1 ₱ 800,000.00 ₱ 5,441,354.00
2 ₱ 326,481.24 ₱ 800,000.00 ₱ 4,967,835.24
3 ₱ 298,070.11 ₱ 800,000.00 ₱ 4,465,905.35
4 ₱ 267,954.32 ₱ 800,000.00 ₱ 3,933,859.68
5 ₱ 236,031.58 ₱ 800,000.00 ₱ 3,369,891.26
6 ₱ 202,193.48 ₱ 800,000.00 ₱ 2,772,084.73
7 ₱ 166,325.08 ₱ 800,000.00 ₱ 2,138,409.82
8 ₱ 128,304.59 ₱ 800,000.00 ₱ 1,466,714.40
9 ₱ 88,002.86 ₱ 800,000.00 ₱ 754,717.27
10 ₱ 45,283.04 ₱ 800,000.00 ₱ 0.30
11
12
13
14
15
16
17
18
19
20

Present value of an annuity due for 10 periods at 6%

7.80169 * ₱800,000 = ₱6,241,352.00
For the last 10 periods less the present value of an annuity due for 10 periods
(12.15812 - 7.80169) * ₱320,000 =₱1,394,057.60
G COMPANY
Terminal Facilities and the Related Obligation
010

₱ 6,241,354.00

₱ 1,394,056.00

₱ 7,635,410.00

Interest Expense Lease Payment Carrying Value

₱ 1,394,056.00
₱ 83,643.36 ₱ 1,477,699.36
₱ 88,661.96 ₱ 1,566,361.32
₱ 93,981.68 ₱ 1,660,343.00
₱ 99,620.58 ₱ 1,759,963.58
₱ 105,597.81 ₱ 1,865,561.40
₱ 111,933.68 ₱ 1,977,495.08
₱ 118,649.70 ₱ 2,096,144.78
₱ 125,768.69 ₱ 2,221,913.47
₱ 133,314.81 ₱ 2,355,228.28
₱ 141,313.70 ₱ 2,496,542.00
₱ 320,000.00 ₱ 2,176,542.00
₱ 130,592.52 ₱ 320,000.00 ₱ 1,987,134.52
₱ 119,228.07 ₱ 320,000.00 ₱ 1,786,362.59
₱ 107,181.76 ₱ 320,000.00 ₱ 1,573,544.35
₱ 94,412.66 ₱ 320,000.00 ₱ 1,347,957.01
₱ 80,877.42 ₱ 320,000.00 ₱ 1,108,834.43
₱ 66,530.07 ₱ 320,000.00 ₱ 855,364.49
₱ 51,321.87 ₱ 320,000.00 ₱ 586,686.36
₱ 35,201.18 ₱ 320,000.00 ₱ 301,887.55
₱ 18,113.25 ₱ 320,000.00 ₱ 0.80

ue for 10 periods
roblem 3
LESSEE
INCOME STATEMENT
Interest expense
Lease executory expense
Depreciation expense (300,383 / 6)

BALANCE SHEET
Lease computer - cost
Accumulated depreciation
Prepaid executory cost
Interest payable
Lease liability - current
Lease liability - noncurrent

LESSOR
INCOME STATEMENT
Interest revenue

BALANCE SHEET
Interest receivable
Lease receivable - current
Lease receivable - noncurrent
Problem 4
7a Lease receivable at incetion of the lease
PV of ₱ 60,000 annuity due (10 years) (60,000 * 6.759)
Add: PV of GRV (15,000 * 0.386)
Lease receivable at incetion of the lease
b Sales Price
c Cost of sales
Cost of equipment
Multiply by:
Sales Price ₱ 411,330.00
Less: GRV ₱ 15,000.00
Divide by:
Fair value ₱ 411,330.00
Less: GRV ₱ 15,000.00
Cost of sales

8 Beginning of Year Annual Lease Collection Interest (10%) on

Plus Residual Value Lease receivable
Initial PV
1 ₱ 60,000.00 ₱ -
2 ₱ 60,000.00 ₱ 35,132.40
3 ₱ 60,000.00 ₱ 32,645.64
4 ₱ 60,000.00 ₱ 29,910.20
5 ₱ 60,000.00 ₱ 26,901.22
6 ₱ 60,000.00 ₱ 23,591.35
7 ₱ 60,000.00 ₱ 19,950.48
8 ₱ 60,000.00 ₱ 15,945.53
9 ₱ 60,000.00 ₱ 11,540.08
10 ₱ 60,000.00 ₱ 6,694.09
End of 10 ₱ 15,000.00 ₱ 1,363.50

9 Lease liability at incetion of the lease

PV of ₱ 60,000 annuity due (10 years) (60,000 * 6.759)
Add: PV of GRV (15,000 * 0.386)
Lease liability at incetion of the lease

10 Annual Lease Payment Interest (10%) on

Beginning of Year
Plus GRV Unpaid Liability
Initial PV
1 ₱ 60,000.00 ₱ -
2 ₱ 60,000.00 ₱ 35,132.40
3 ₱ 60,000.00 ₱ 32,645.64
4 ₱ 60,000.00 ₱ 29,910.20
5 ₱ 60,000.00 ₱ 26,901.22
6 ₱ 60,000.00 ₱ 23,591.35
7 ₱ 60,000.00 ₱ 19,950.48
8 ₱ 60,000.00 ₱ 15,945.53
9 ₱ 60,000.00 ₱ 11,540.08
10 ₱ 60,000.00 ₱ 6,694.09
End of 10 ₱ 15,000.00 ₱ 1,363.50
₱ 405,540
₱ 5,790
₱ 411,330
₱ 411,330

₱ 250,000

₱ 396,330

₱ 396,330
₱ 250,000

Recovery of Lease Lease Receivable

Receivable
₱ 411,324.00
₱ 60,000 ₱ 351,324.00
₱ 24,868 ₱ 326,456.40
₱ 27,354 ₱ 299,102.04
₱ 30,090 ₱ 269,012.24
₱ 33,099 ₱ 235,913.47
₱ 36,409 ₱ 199,504.82
₱ 40,050 ₱ 159,455.30
₱ 44,054 ₱ 115,400.83
₱ 48,460 ₱ 66,940.91
₱ 53,306 ₱ 13,635.00
₱ 13,637 ₱ (1.50)

The lease is classified as a finance lease for the lessee, M

₱ 405,540
₱ 5,790 1. The lease term is 10 years, which covers
₱ 411,330
2. The present value of lease payments plus GRV
Reduction of Lease
Lease Liability
Liability Therefore, Macinski should recognize a right-of-use asse
₱ 411,324.00
₱ 60,000 ₱ 351,324.00
₱ 24,868 ₱ 326,456.40
₱ 27,354 ₱ 299,102.04
₱ 30,090 ₱ 269,012.24
₱ 33,099 ₱ 235,913.47
₱ 36,409 ₱ 199,504.82
₱ 40,050 ₱ 159,455.30
₱ 44,054 ₱ 115,400.83
₱ 48,460 ₱ 66,940.91
₱ 53,306 ₱ 13,635.00
₱ 13,637 ₱ (1.50)
 e lease for the lessee, Macinski Medical Center, due to the following reasons:

which covers more than 80% of the asset's 12-year useful life (10/12 = 83%).

ayments plus GRV is equal to or substantially all of the fair value of the asset (₱411,324).

nize a right-of-use asset and a lease liability at the commencement of the lease.
Problem 5
11 a Lease receivable at incetion of the lease
PV of ₱ 40,000 annuity due (10 years) (40,000 * 6.759)
Add: PV of Unguaranteed residual (20,000 * 0.386)
Lease receivable at incetion of the lease
b Sales Price
c Cost of sales
Cost of equipment
Multiply by: Sales Price
Divided by: Lease Receivable
Cost of sales

12 Annual Lease Collection Interest (10%) on

Beginning of Year
Plus Residual Value Lease receivable
Initial PV
1 ₱ 40,000.00 ₱ -
2 ₱ 40,000.00 ₱ 23,807.20
3 ₱ 40,000.00 ₱ 22,187.92
4 ₱ 40,000.00 ₱ 20,406.71
5 ₱ 40,000.00 ₱ 18,447.38
6 ₱ 40,000.00 ₱ 16,292.12
7 ₱ 40,000.00 ₱ 13,921.33
8 ₱ 40,000.00 ₱ 11,313.47
9 ₱ 40,000.00 ₱ 8,444.81
10 ₱ 40,000.00 ₱ 5,289.30
End of 10 ₱ 20,000.00 ₱ 1,818.22

13 Lease liability at incetion of the lease

PV of ₱ 40,000 annuity due (10 years) (40,000 * 6.759)
Add: PV of Unguaranteed residual (20,000 * 0.386)
Lease liability at incetion of the lease

14 Interest (10%) on
Beginning of Year Annual Lease Payment
Unpaid Liability
Initial PV
1 ₱ 40,000.00 ₱ -
2 ₱ 40,000.00 ₱ 23,807.20
3 ₱ 40,000.00 ₱ 22,187.92
4 ₱ 40,000.00 ₱ 20,406.71
5 ₱ 40,000.00 ₱ 18,447.38
6 ₱ 40,000.00 ₱ 16,292.12
7 ₱ 40,000.00 ₱ 13,921.33
8 ₱ 40,000.00 ₱ 11,313.47
9 ₱ 40,000.00 ₱ 8,444.81
10 ₱ 40,000.00 ₱ 5,289.30
End of 10 ₱ 20,000.00 ₱ 1,818.22
₱ 270,360
₱ 7,720
₱ 278,080
₱ 270,360

₱ 180,000
₱ 270,360
₱ 278,080
₱ 175,003

Recovery of Lease
Lease Receivable
Receivable
₱ 278,072
₱ 40,000 ₱ 238,072
₱ 16,193 ₱ 221,879
₱ 17,812 ₱ 204,067
₱ 19,593 ₱ 184,474
₱ 21,553 ₱ 162,921
₱ 23,708 ₱ 139,213
₱ 26,079 ₱ 113,135
₱ 28,687 ₱ 84,448
₱ 31,555 ₱ 52,893
₱ 34,711 ₱ 18,182
₱ 18,182 ₱ 0

₱ 270,360
₱ 7,720
₱ 278,080

Reduction of Lease
Lease Liability
Liability
₱ 278,072
₱ 40,000 ₱ 238,072
₱ 16,193 ₱ 221,879
₱ 17,812 ₱ 204,067
₱ 19,593 ₱ 184,474
₱ 21,553 ₱ 162,921
₱ 23,708 ₱ 139,213
₱ 26,079 ₱ 113,135
₱ 28,687 ₱ 84,448
₱ 31,555 ₱ 52,893
₱ 34,711 ₱ 18,182
₱ 18,182 ₱ 0
Problem 6
Journal Entry
Account Titles Debit Credit
15 Right-of- use Asset - Land ₱ 65,834.00
Right-of- use Asset - Building ₱ 272,116.00
Lease Liability ₱ 337,950.00

16 Right-of- use Asset - Building ₱ 272,116.00

Lease Liability ₱ 272,116.00

Rent Expense - Land ₱ 6,583.00

Lease Payable - Land ₱ 6,583.00

17 Right-of- use Asset - Building ₱ 241,393.00

Lease Liability ₱ 241,393.00

Rent Expense - Land ₱ 9,656.00

Lease Payable - Land ₱ 9,656.00
(75,000 / 385,000) * 337,950
(310,000 / 385,000) * 337,950
Total PV of lease payments (₱ 50,000 * 6.759 =₱337,950.00)

(310,000 / 385,000) * 337,950

(75,000 / 385,000) * 337,950 * 10%

(275,000 / 385,000) * 337,950

(110,000 / 385,000) * 337,950 * 10%

PROBLEM
4
7 a. Lease Receivable at Inception of the Lease

PV of 60,000
annuity due,
10 years ₱405,541
Add: PV of
GRV 5,783

Lease
Receivable at
Inception of
the Lease ₱411,324
b. Sales Price ₱411,324

c. Cost of Sales
Cost of
equipment ₱250,000

Multiply by:
Sales Price ₱411,324
Less: GRV -15,000
396,324.30
Divided by:
Fair Value 411,324.00
Less: GRV -15,000
396,324.00 1
₱250,000

Beginning of
8 Year Annual Lease Collection Interest (10%) on

Plus Residual Value Lease receivable

Initial PV
1 ₱60,000.00 ₱-
2 ₱60,000.00 ₱35,132.40
3 ₱60,000.00 ₱32,645.64
4 ₱60,000.00 ₱29,910.20
5 ₱60,000.00 ₱26,901.22
6 ₱60,000.00 ₱23,591.35
7 ₱60,000.00 ₱19,950.48
8 ₱60,000.00 ₱15,945.53
9 ₱60,000.00 ₱11,540.08
10 ₱60,000.00 ₱6,694.09
 End of 10 ₱15,000.00 ₱1,363.50

9 The lease is classified as a finance lease for the lessee, Macinski Medical Center, due to the
1. The lease term is 10 years, which covers more than 80% of the asset's 12-year useful life
2. The present value of lease payments plus GRV is equal to or substantially all of the fair v
Therefore, Macinski should recognize a right-of-use asset and a lease liability at the comme

a. Lease Receivable at Inception of the Lease

PV of 60,000
annuity due,
10 years ₱405,541.20
Add: PV of
GRV 5,783.10

Lease
Receivable at
Inception of
the Lease ₱411,324
Formulas:

Cash Flows ₱60,000.00 Cash Flows ₱15,000.00

x PV Factors 6.75902 x PV Factors 0.386

PV of annual payment ₱405,541 PV of GRV ₱5,783

Recovery of Lease Lease Receivable

Receivable
₱411,324.00
₱60,000 ₱351,324.00
₱24,868 ₱326,456.40
₱27,354 ₱299,102.04
₱30,090 ₱269,012.24
₱33,099 ₱235,913.47
₱36,409 ₱199,504.82
₱40,050 ₱159,455.30
₱44,054 ₱115,400.83
₱48,460 ₱66,940.91
₱53,306 ₱13,635.00
 ₱13,637 -₱1.50

Macinski Medical Center, due to the following reasons:

80% of the asset's 12-year useful life (10/12 = 83%).
al to or substantially all of the fair value of the asset (₱411,324).
et and a lease liability at the commencement of the lease.

Formulas:

Cash Flows ₱60,000.00 Cash flows 15,000.00

PV Factors 6.75902 PV Factors 0.38554

PVAD, 10 years ₱405,541 PV of GRV ₱5,783.10