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    6835 Finance Lease Lessor

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    Jeslyn Kris Alobba Saguibo
    The document discusses several examples of finance lease accounting from the perspective of the lessor. The examples cover calculating the gross investment in the lease, net investment in the lease, total unearned interest income, interest income recognition, and total financial revenue for both sales-type and direct financing leases over various lease terms. The document provides lease details like cost of the leased asset, lease payments, residual value, implicit interest rate, and direct costs to solve for the required lease accounting entries and balances.

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    6835 Finance Lease Lessor

    Uploaded by

    Jeslyn Kris Alobba Saguibo
    22 views2 pages
    The document discusses several examples of finance lease accounting from the perspective of the lessor. The examples cover calculating the gross investment in the lease, net investment in the lease, total unearned interest income, interest income recognition, and total financial revenue for both sales-type and direct financing leases over various lease terms. The document provides lease details like cost of the leased asset, lease payments, residual value, implicit interest rate, and direct costs to solve for the required lease accounting entries and balances.

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    The document discusses several examples of finance lease accounting from the perspective of the lessor. The examples cover calculating the gross investment in the lease, net investment in the lease, total unearned interest income, interest income recognition, and total financial revenue for both sales-type and direct financing leases over various lease terms. The document provides lease details like cost of the leased asset, lease payments, residual value, implicit interest rate, and direct costs to solve for the required lease accounting entries and balances.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    22 views2 pages

    6835 Finance Lease Lessor

    Uploaded by

    Jeslyn Kris Alobba Saguibo
    The document discusses several examples of finance lease accounting from the perspective of the lessor. The examples cover calculating the gross investment in the lease, net investment in the lease, total unearned interest income, interest income recognition, and total financial revenue for both sales-type and direct financing leases over various lease terms. The document provides lease details like cost of the leased asset, lease payments, residual value, implicit interest rate, and direct costs to solve for the required lease accounting entries and balances.

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    of 2

    CPA REVIEW SCHOOL OF THE PHILIPPINES

    Ma nila

    FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/ESCALA/SANTOS/DELA CRUZ

    FINANCE LEASE - LESSOR

    1. An entity is a dealer in equipment. At the beginning of current year, an equipment was leased to
    another entity under a sales type lease with the following provisions:
    Annual rental payable at the end of each year 1,500,000
    Lease term and useful life of machinery 5 years
    Cost of equipment 4,000,000
    Fair value of equipment on date of lease 6,000,000
    Guaranteed residual value 500,000
    Implicit interest rate 12%
    PV of an ordinary annuity of 1 for 5 periods at 12% 3.60
    PV of 1 for 5 periods at 12% 0.57
    The equipment will revert to the lessor at the end of lease term. The fair value of the asset is
    P350,000 at the end of lease term. The perpetual inventory system is used. The lessor incurred initial
    direct cost of P200,000 in finalizing the lease agreement.
    1. What is the gross investment in the lease?
    a. 7,500,000
    b. 8,000,000
    c. 4,000,000
    d. 6,000,000
    2. What is the net investment in the lease?
    a. 5,400,000
    b. 5,685,000
    c. 4,000,000
    d. 3,500,000
    3. What is the total financial revenue?
    a. 2,315,000
    b. 2,285,000
    c. 2,000,000
    d. 2,600,000
    4. What amount of interest income should be recognized for the current year?
    a. 682,200
    b. 648,000
    c. 720,000
    d. 480,000
    5. What amount should be reported as gross income on sale for the current year?
    a. 1,485,000
    b. 1,685,000
    c. 1,800,000
    d. 2,000,000

    2. An entity acquired an asset costing P3,165,000. The asset is leased to another entity for 5 years. The
    five annual lease payments are due at the end of each year. The unguaranteed residual value of the
    asset at the end of the lease term is P500,000. The asset will revert to the lessor at the end of the
    lease term. The lessor’s implicit interest rate is 12%. The PV of 1 at 12% for 5 periods is .57 and
    the PV of an ordinary annuity of 1 at 12% for 5 periods is 3.60. What is the annual rental payment?
    a. 879,166
    b. 740,278
    c. 800,000
    d. 500,000

    6835
    Page 2

    3. An entity is in the business of leasing equipment under a direct financing lease. The lessor expects
    a 12% return on net investment. At the end of the lease term, title to the equipment will transfer
    to the lessee. At the beginning of current year, an equipment is leased to a lessee with the following
    information:

    Cost of equipment to the lessor 5,000,000


    Residual value 600,000
    Annual rental payable at the end of each year 1,050,000
    Initial direct cost incurred by the lessor 250,000
    Useful life and lease term 8 years
    Implicit interest rate 12%

    1. What is the gross investment in the lease?


    a. 8,400,000
    b. 9,000,000
    c. 5,000,000
    d. 5,250,000

    2. What is the net investment in the lease?


    a. 5,000,000
    b. 5,250,000
    c. 4,400,000
    d. 4,650,000

    3. What is the total unearned interest income at the beginning of lease?


    a. 3,750,000
    b. 3,150,000
    c. 4,000,000
    d. 3,400,000

    4. What amount of interest income should be recognized for the current year?
    a. 594,000
    b. 522,000
    c. 630,000
    d. 450,000

    4. An entity decided to enter the leasing business. The entity acquired a specialized packaging machine
    for P2,300,000. At the beginning of current year, 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 in advance at the beginning of each year. The residual value of the machine is P200,000. The
    lease terms are arranged so that a return of 12% is earned by the lessor. The present value of 1 at
    12% for six periods is 0.51, the present value of an annuity in advance of 1 at 12% for six periods is
    4.60 and the PV of an ordinary annuity of 1 at 12% for six periods is 4.11.
    1. What is the annual lease payment payable in advance required to yield the desired return?
    a. 500,000
    b. 477,826
    c. 559,610
    d. 460,000
    2. What is the total financial revenue?
    a. 1,057,660
    b. 1,257,660
    c. 700,000
    d. 900,000
    E N D 6835

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