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Here are some of the exercises on accounting for leases.
Typology: Exercises
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PROBLEM NO. 2 – Lessee, with BPO Nuggets Enterprises has a long-standing policy of acquiring company equipment by leasing. Early in 2020, the company entered into a lease for a new equipment. The lease stipulates that annual payments will be made for 5 years. The payments are to be made in advance on December 31 of each year. At the end of the 5-year period, Nuggets may purchase the equipment. The estimated economic life of the equipment is 12 years. Nuggets uses the calendar year for reporting purposes and straight-line depreciation for other equipment. In addition, the following information about the lease is also available: Annual lease payments (including executory costs of P5,000) P60, Purchase option price P25, Estimated fair value of equipment Interest expense P 2, Lease liability 22, Cash P25, REQUIREMENT NO. 3 Interest expense P 2, Lease liability 22, Accumulated depreciation 102, Loss on lease 117, Right of use asset P244, Amortization schedule: Carrying after 5 years P75 000 Implicit rate 10% Date of first lease payment Jan. 1, 2020 REQUIRED:
To record initial payment Lease liability P420, Cash P420, December 31, 2020 To record accrual of interest Interest expense P204, Interest payable P204, To record depreciation Depreciation P292,146* Accumulated depreciation P292, *[(P2,120,000-P367,122)/6] January 1, 2021 To record the second payment Interest payable P204, Lease liability 216, Cash P420, December 31, 2021 To record accrual of interest Interest expense P178, Interest payable P178, To record depreciation Depreciation P292, Accumulated depreciation P292, REQUIREMENT NO. 2 To record return of equipment to lessor Interest payable P 39, Lease liability 327, Accumulated depreciation 1,752, Right of use asset P2,120, REQUIREMENT NO. 3 To record return of equipment to lessor Interest payable P 39, Lease liability 327, Accumulated depreciation 1,752, Right of use asset P2,120, To record payment to lessor Loss on lease P67, Cash P67, Amortization schedule: Carrying Date 01.01. Payment Interest Principal amount 2,120, 01.01.20 420,000 - 420,000 1,700, PROBLEM NO. 3 – Lessor and Lessee , (Lessor, Direct Financing Lease) Assimilator Controls Corporation is in the business of leasing equipment. Assimilator Controls purchased new equipment on December 31, 2020. The equipment was delivered the same day (by prior arrangement) to Tantalum Investment Company, a lessee. The corporation accountant revealed the: following information relating to the lease transaction: Cost of equipment to Assimilator Controls P550, Estimated useful life and lease term 8 years Expected residual value (unguaranteed) P40, Assimilator Controls' implicit rate of interest 12% Tantalum’s incremental borrowing rate 14% Date of first lease payment Dec. 31, 2020 Annual lease payments P95, Additional information is as follows: (a) At the end of the lease, the equipment will revert to Assimilator Controls. (b) Tantalum is aware of Assimilator Controls' rate of implicit interest. (c) The lease rental consists of equal annual payments. REQUIRED: Prepare the 2020 and 2021 journal entries relating to the lease on the books of Assimilator Controls and Tantalum Investment Company LESSOR’S BOOKS December 31, 2020 Commencement of finance lease Finance lease receivable (FLR) P807, Equipment P550, Discount on FLR* 257, * Alternatively, “Unearned Interest Income” To record initial payment Cash P95, Finance lease receivable P95, December 31, 2021 To record the second payment Cash P95, Finance lease receivable P95, To record amortization of discount on FLR Discount on FLR P54, Interest income P54, LESSEE’S BOOKS December 31, 2020 P533, Cash P95, 01.01.21 420,000 204,000 216,000 1,484, 01.01.22 420,000 178,080 241,920 1,242,080 To^ recognize^ asset^ and^ liability 01.01.23 420,000 149,050 270,950 971,130 Right^ of^ use^ asset^ P533, 01.01.24 420,000 116,536 303,464 667,665 Lease^ liability 01.01.25 420,000 80,120 339,880 327,785 To^ record^ initial^ payment 01.01.26 367,122 39,337 327,785 - Lease^ liability^ P95,