INTACC2-Mod6&7

Easy. Which of the following is not a requisite in a lease contract?

• Purchase option

• Identified asset

• Control

Difficult. In computing depreciation of a leased asset, the lessee should subtract

• a guaranteed residual value and depreciate over the term of the lease.

• an unguaranteed residual value and depreciate over the term of the lease.

• a guaranteed residual value and depreciate over the life of the asset

Easy. A right of use asset is initially measured at cost and subsequently measured using the

• fair value model

• cost model

• revaluation model

• any of these

Average. Minimum lease payments may include which of the following?

• penalty for failure to renew

• bargain purchase option

• guaranteed residual value

• any of these

Average. When a lease transfers ownership to the lessee by the end of the lease term, the underlying asset is depreciated

• over the shorter of useful life and lease term

• over its useful life

• over the lease term

Average. A lessor’s net investment in a finance lease is computed as

• Present value of lease payments plus unguaranteed residual value

• Lease payments plus guaranteed residual value

• sum of lease payments plus unguaranteed residual value and the present value of lease payments plus unguaranteed residual value

Average. Siren Company leases a machine from Weekend Corp. under an agreement which meets the criteria to be a capital lease for Siren. The six-year lease requires payment of P95,000 at the beginning of each year, inclusive of annual fees for maintenance, insurance, and taxes amounting to P12,000. The incremental borrowing rate for the lessee is 10% while the lessor's implicit rate is 8% and is known by the lessee. Siren should record the leased asset at what value?

• P414,395

• P397,636

• P474,307

Easy. On January 1, 2022, Heart Corporation entered into a four-year noncancelable lease for machinery. The terms of the lease includes annual payments of P108,000 at the beginning of each year for four years. The machinery has an estimated useful life of 6 years with no residual value. The straight-line method of depreciation is used for all of Heart’s fixed assets. Heart accordingly accounts for this lease transaction as a capital lease. The minimum lease payments were determined to have a present value of P371,921 at an effective interest rate of 11%. In 2022, how much should Heart record as interest expense?

• P29,031

• P40,911

• P52,791

Easy. Medusa, Inc. signed a 9-year lease agreement to lease a warehouse from Percy Co. on January 1, 2023. The lease is noncancelable. There is reasonable predictability on the collectibility of the payments and no important uncertainties surround the amount of costs yet to be incurred by the lessor.

Refer to the information below pertaining to this lease:

• Equal rental payments are to be made at the end of each year.

• On January 1, 2023, the fair value of the warehouse was P3,200,000 but its value in the book of Percy was P3,000,000.

• The estimated useful life of the warehouse is 9 years, with a residual value of zero. The straight-line method is used by Medusa to depreciate similar buildings.

• Title to the warehouse building will be transferred to the lessee at the termination date.

• The incremental borrowing rate of Medusa is 12% annually. The implicit rate of Percy Co. is readily determinable and is set to 9%.

• A P15,000 representing executory costs related to yearly property taxes is included in the annual lease payment.

Compute the amount of the MINIMUM annual lease payment.

• P533,756

• P545,231

• P557,453

Average. Medusa, Inc. signed a 9-year lease agreement to lease a warehouse from Percy Co. on January 1, 2023. The lease is noncancelable. There is reasonable predictability on the collectibility of the payments and no important uncertainties surround the amount of costs yet to be incurred by the lessor.

Refer to the information below pertaining to this lease:

• Equal rental payments are to be made at the end of each year.

• On January 1, 2023, the fair value of the warehouse was P3,200,000 but its value in the book of Percy was P3,000,000.

• The estimated useful life of the warehouse is 9 years, with a residual value of zero. The straight-line method is used by Medusa to depreciate similar buildings.

• Title to the warehouse building will be transferred to the lessee at the termination date.

• The incremental borrowing rate of Medusa is 12% annually. The implicit rate of Percy Co. is readily determinable and is set to 9%.

• A P15,000 representing executory costs related to yearly property taxes is included in the annual lease payment.

Compute the amount of the TOTAL annual lease payment.

• P548,756

• P560,231

• P572,453