Lease arrangement with PURCHASE OPTION An entity leased a machinery with useful life of 10 years on January 1, 2020 for period of 8 years with fixed annual rental of P800,000 which is to be paid at the end of each year. The lease contract provides that the lessee has the option to purchase the leased asset at the end of the lease term by paying P50,000. The estimated residual value of the leased asset at the end of its useful life is P150,000. The lessee is reasonably certain to exercise the bargain purchase option. The implicit interest rate in the lease is 12% and the incremental borrowing rate is 10%. REQUIRED: Prepare table of amortization and journal entries for the entire lease term.
PROBLEM 2: Lease arrangement with PURCHASE OPTION
An entity leased a machinery with useful life of 10 years on January 1, 2020 for period of 8 years with fixed annual rental of P800,000 which is to be paid at the end of each year. The lease contract provides that the lessee has the option to purchase the leased asset at the end of the lease term by paying P50,000. The estimated residual value of the leased asset at the end of its useful life is P150,000. The lessee is reasonably certain to exercise the bargain purchase option. The implicit interest rate in the lease is 12% and the incremental borrowing rate is 10%. REQUIRED: Prepare table of amortization and
PROBLEM 3: Lease arrangement with GUARANTEED Residual Value
Lazy Company leased an equipment with useful life of 6 years on January 1, 2020 for period of 5 years with fixed annual rental of P600,000 which is to be paid at the end of each year. The lease contract provides that the lessee has guaranteed a P100,000 residual value of the leased asset. The implicit interest rate in the lease is 10%. REQUIRED: Prepare table of amortization and journal entries for the entire lease term.
PROBLEM 4: Lease arrangement with Guaranteed Residual Value and annual fixed lease payment is paid at the beginning of each year, with DIRECT COST and LEASE INCENTIVE
Lazy Company leased an equipment with useful life of 6 years on January 1, 2020 for period of 5 years with fixed annual rental of P600,000 which is to be paid in advance at the beginning of each year. The lease contract provides that the lessee has guaranteed a P100,000 residual value of the leased asset and a lease incentive P80,000. Initial direct cost incurred and paid by the lessee amounted to P200,000. The implicit interest rate in the lease is 10%. REQUIRED: Prepare table of amortization and journal entries for the entire lease term.
PROBLEM 5: Lease Agreement with UNGUARANTEED Residual Value, RESTORATION COST and ANNUAL EXECUTORY COST
Lazy Company leased a building with useful life of 10 years on January 1, 2020 for period of 8 years with fixed annual rental of P800,000 which is to be paid at the end of each year. The residual value of P100,000 is unguaranteed. Initial direct cost incurred and paid by the lessee amounted to P150,000. Additional payment to the lessor to obtain the long-term arrangement of the lease amounts to P100,000. Annual property taxes/insurance/maintenance and other executory costs paid P90,000. The lease agreement further provides restoration cost of the leased asset at the end of lease term for P250,000 (present value). The implicit interest rate in the lease is 10%. REQUIRED: Prepare table of amortization and journal entries for the entire lease term.
PROBLEM 6: Leased asset was PURCHASED by the lessee
Lazy Company leased an equipment with useful life of 6 years on January 1, 2020 for period of 5 years with fixed annual rental of P600,000 which is to be paid at the end of each year. The lease contract provides that the lessee has guaranteed a P100,000 residual value of the leased asset. The implicit interest rate in the lease is 10%. Assuming that at December 31, 2022, Lazy Company purchased the equipment for P1,300,000. REQUIRED: Prepare table of amortization and journal entries for the entire lease term.
PROBLEM 7: Lease Agreement with EXTENSION OPTION
Lee Company entered into a lease of warehouse on January 1, 2020. The lease contract provided the following information:
Lease term 5 years
Estimated useful life of the leased asset 15 years
Annual rental payable at the end of each year 600,000
Interest rate implicit in the lease 12%
Included in the lease agreement an option for the lessee to extend the lease term for another 5 years. At the commencement date, the exercise of the extension option is not reasonably certain.
At the December 31, 2022, the lessee decided to extend the lease for further 5 years. The agreement was finalized on January 1, 2023 with following arrangement on the extension option:
New annual rental payable at the end of each year 700,000
New interest rate implicit in the lease 10%
REQUIRED: Prepare table of amortization and journal entries for the entire lease term.
PROBLEM 8: Lease agreement with VARIABLE PAYMENTS
Li Zi Company entered into a lease of building on January 1, 2020. The lease contract provided the following information:
Lease term 10 years
Estimated useful life of leased asset 12 years
Annual rental payable at end of each year for the first 5 years 400,000
Annual rental payable at end of each year for the next first 5 years 550,000
Interest rate implicit in the lease 10%
No purchase option nor transfer of title
REQUIRED: Prepare table of amortization and journal entries for the entire lease term.
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