On January 1, 20A1, Mangosteen leased its land to Gumamela for a period of 15 years for P200,000 monthly. Mangosteen also charged Gumamela real property tax (RPT) on the land for P20,000 monthly. Gumamela constructed a building on said land. The building was completed on October 1, 20A1 with total construction costs of P5,000,000, which represents its fair market value at the time of completion. The building will be transferred to Mangosteen at the end of the lease term. The building had an estimated useful life of 40 years. However, Gumamela terminated the lease on September 30, 20A8. It paid penalty of P1,200,000 for the termination of the contract. Required: Determine the annual gross income that will be reported by Mangosteen for the entire term of the lease under the two allowable methods in recognizing income.

On January 1, 20A1, Mangosteen leased its land to Gumamela for a period of 15 years for P200,000 monthly. Mangosteen also charged Gumamela real property tax (RPT) on the land for P20,000 monthly. Gumamela constructed a building on said land. The building was completed on October 1, 20A1 with total construction costs of P5,000,000, which represents its fair market value at the time of completion. The building will be transferred to Mangosteen at the end of the lease term. The building had an estimated useful life of 40 years. However, Gumamela terminated the lease on September 30, 20A8. It paid penalty of P1,200,000 for the termination of the contract. Required: Determine the annual gross income that will be reported by Mangosteen for the entire term of the lease under the two allowable methods in recognizing income.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: Winnie Corporation purchases Joshua Company and, as part of the contract, will have to pay Joshua an…

A: A provision is recognized by an organization if it seems likely that an outflow of money or other…

Q: On January 1, 2018, Maywood Hydraulics leased drilling equipment from Aqua Leasing for a four-year…

A: Lease is an agreement or association between two parties in which one party provides its asset for…

Q: Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It can obtain…

A: Answer - Part 1 - NPV LEASE ANALYSIS 0 1 2 3 4 Cost of Owning After-tax loan…

Q: REQUIRED: 1. Identify the type of lease involved for Lakeshore Gelato and Gelato Equipment Company…

A: The lease is classified as a finance lease for both Lakeshore Gelato (lessee) and Gelato Equipment…

Q: Windsor, Inc. has entered an agreement to lease an old warehouse with a useful life of 5 years and a…

A: To record the initial lease liability and right-of-use asset for Windsor, the following journal…

Q: On July 1, 2025, Waterway Inc. made two sales. 1. 2. It sold land having a fair value of $913,050 in…

A: The journal entry is a way to record the business transactions in the accounting records. The…

Q: On January 1, 2023, Carla Vista Leasing Inc., a lessor that uses IFRS, signed an agreement with Rock…

A: A lease is defined as a contractual agreement incorporated between two business entities where one…

Q: On January 1, 2024, Nguyen Electronics leased equipment from Nevels Leasing for a four-year period…

A: Lease is defined as a contractual agreement incorporated between two business entities where one…

Q: ABC, Inc. purchased an equipment at time=0 for $135,077. The shipping and installation costs were…

A: Calculation of Cash Flow in Year 4:The cash flow in year 4 is $123,123.96.Excel Spreadsheet:

Q: On July1, 2022, Pepperpot Company made a lump sum purchase of an office building, including the land…

A: Depreciation expense is an indirect expense related to the business which represents a decrease in…

Q: Elton Electronics leases testing equipment to Startup Corporation. The equipment is not specialized…

A: Approach to solving the question: For better clarity of the solution, I have attached the Excel…

Q: In 2024, Sheffield Enterprises negotiated and closed a long-term lease contract for newly…

A: Present Value -Present Value (PV) can be defined as the total of future investment returns…

Q: Sunshine offers a contract to Cape Country Club, which is comprised of 10 patio set plus…

A: The objective of the question is to identify the performance obligations in the contract, calculate…

Q: d. December 31, Year 3-Interest payment. Date Dec. 31, Year 3 Account Name Date Dec. 31, Year 3 To…

A: To raise funds, notes can be issued. The notes are issued at a discount, which means that the cash…

Q: Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It can obtain…

A: To solve these problems, we'll need to calculate the cost of owning the machinery, the cost of…

Q: Ivanhoe Company specializes in leasing large storage units to other businesses. Ivanhoe entered a…

A: GIVENDateLease PaymentInterest (9%) onOutstanding Lease ReceivableReduction ofLease…

Q: Elton Electronics leases testing equipment to Startup Corporation. The equipment is not specialized…

A: The objective of the question is to calculate the principal balance in the Net Investment in Lease —…

Q: y Inc. had the following transactions related to intangibles during the year: • On January 1, 2022,…

A: Book value of the franchise include all payments done for acquiring the rights of franchise. That…

Question

On January 1, 20A1, Mangosteen leased its land to Gumamela for a period of 15 years for P200,000 monthly.
Mangosteen also charged Gumamela real property tax (RPT) on the land for P20,000 monthly.
Gumamela constructed a building on said land. The building was completed on October 1, 20A1 with total
construction costs of P5,000,000, which represents its fair market value at the time of completion. The building
will be transferred to Mangosteen at the end of the lease term. The building had an estimated useful life of 40
years.
However, Gumamela terminated the lease on September 30, 20A8. It paid penalty of P1,200,000 for the
termination of the contract.
Required: Determine the annual gross income that will be reported by Mangosteen for the entire term of the
lease under the two allowable methods in recognizing income.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Allowable methods

VIEW

Step 2: Computation

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Section 179 Deduction and Modified Accelerated Cost Recovery System (MACRS) Depreciation

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Russell Company acquired land in 2023 for a building site at a cost of $40,000. A building was constructed on the site in 2024. At the company's 12/31/2024 year-end, the assessed valuation of the land for tax purposes is $27,000, a qualified appraiser placed the fair value of the land at $48,000, and a recent firm offer for the land was for a cash payment of $46,000. What value should be reported for the land in the 12/31/2024 balance sheet? Select one: $46,000 $40,000 $48,000 $27,000
On January 1, 2021, Moo Company sold an asset with a carrying amount of P6,000,000 to Boo Company for P8,000,000. The asset had a fair value of P7,500,000 and a remaining useful life of six years. The asset was immediately leased back to Moo Company for a term of four years and annual rentals of P1,500,000 payable every yearend. The transfer qualified for as a sale and the lease was accounted for as a finance lease with an implicit interest rate of 12%. How much is the 2021 net income/loss of Moo Company relating to the sale and leaseback transaction? [Indicate whether it is a gain or loss] How much is the 2021 net income/loss of BooCompany relating to the sale and leaseback transaction? [Indicate whether it is a gain or loss] How much is the carrying amount of Moo Company's asset as of yearend 2021? How much is the 2022 net income/loss of Moo Company relating to the sale and leaseback transaction? [Indicate whether it is a gain or loss] How much is the 2022 net income/loss of Boo…
Maris Co. purchased a machine on January 1, 2021, for $2,500,000 for the express purpose of leasing it. The machine is expected to have a five-year life, with no salvage value, and be depreciated on a straight-line monthly basis. On January 1, 2021, Maris leased the machine to Dunbar Company for $750,000 a year for a four-year period with an implicit rate of 6%. Payments are due to Maris on January 1 of each year starting in 2021. This is an operating lease from the lessee perspective. a. Create the journal entries for the lessee, Dunbar, for January 1, 2021 b. Create the journal entries for the lessee, Dunbar, for December 31, 2021.
a
Fundo entered into a 20-year operating lease for a property on 1 October 2000 which has a remaining life of eight years at 1 October 2012. The rental payments are $2.3 million per annum. Prior to 1 October 2012, Fundo obtained permission from the owner of the property to make some internal alterations to the property so that it can be used for a new manufacturing process which Fundo is undertaking. The cost of these alterations was $7 million and they were completed on 1 October 2012 (the time taken to complete the alterations can be taken as being negligible). A condition of being granted permission was that Fundo would have to restore the property to its original condition before handing back the property at the end of the lease. The estimated restoration cost on 1 October 2012, discounted at 8% per annum to its present value, is $5 million. Required: (a) Explain how the lease, the alterations to the leased property and the restoration costs should be treated in the financial…
Christina Co. has a factory equipment with a carrying amount of P700,000 and has a remaining useful life of 7 years. On January 1, 2020, Christina agreed to an exchange transaction with Kat & Inc. to transfer the equipment to the latter. The transfer satisfied the requirements of PFRS 15 to be a sale and Christina immediately leased it back for a lease term equal to the remaining life of the equipment. The sales price amounted to P500,000 while annual rental payable at the end of each year is P100,000 for an implicit rate of 10%. Selling price is equal to fair value. How much loss shall Christina recognize in relation to the sale and leaseback transaction? a. 681,578.63 b. 200,000 c. 194,736.75 d. 5,263.25
Information concerning Blue Corporation's intangible assets is as follows. On January 1, 2025, Blue signed an agreement to operate as a franchisee of Hsian Copy Service, Inc. for an initial franchise fee of $100,000. Of this amount, $20,000 was paid when the agreement was signed, and the balance is payable in 4 annual payments of $20,000 each, beginning January 1, 2026. The agreement provides that the down payment is not refundable and no future services are required f the franchisor. The present value at January 1, 2025, of the 4 annual payments discounted at 15% (the implicit rate for a loan of this type) is $57,100. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Blue's revenue from the franchise for 2025 was $870,000. Blue estimates the useful life of the franchise to be 10 years. (Hint: You may want to refer to Chapter 18 to determine the proper accounting treatment for the franchise fee and payments.) Blue incurred…
Torrey Co. manufactures equipment that is sold or leased. On December 31, 2018, Torrey leased equipment to Dalton for a five-year period ending December 31, 2023, at which date ownership of the leased asset will be transferred to Dalton. Equal payments under the lease are P1,100,000 (including P100,000 executorycosts) and are due on December 31 of each year. The first payment was made on December 31, 2018. Collectibility of the remaining lease payments is probable. The lease receivable before the first payment is P3,850,000, and cost is P3,000,000. For the year ended December 31, 2018, what amount of income should Torrey realize from the lease transaction?
On January 1, 2024, Nguyen Electronics leased equipment from Nevels Leasing for a four-year period ending December 31, 2027, at which time possession of the leased asset will revert back to Nevels. The equipment cost Nevels $779,677 and has an expected economic life of five years. Nevels expects the residual value on December 31, 2027, will be $103,000. Negotiations led to the lessee guaranteeing a $146,000 residual value. Equal payments under the lease are $203,000 and are due on December 31 of each year with the first payment being made on December 31, 2024. Nguyen is aware that Nevels used a 8% interest rate when calculating lease payments. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: Prepare the appropriate entries for both Nguyen and Nevels on January 1, 2024, to record the lease. Prepare all appropriate entries for both Nguyen and Nevels on December 31, 2024, related to the lease.
Tran Technologies licenses its functional intellectual property to Lyon Industries. Terms of the arrangement require Lyon to pay Tran $590,000 on April 1, 2024, when Lyon first obtains access to Tran’s intellectual property, and then in the future to pay Tran a royalty of 5% of future sales of products that utilize that intellectual property. Tran anticipates receiving sales-based royalties of $1,090,000 during 2024 and $1,590,000 per year for the years 2025 to 2029. Assume Tran accounts for the Lyon license as a right of use, because Tran’s actions subsequent to April 1, 2024, will not affect the benefits that Lyon receives from access to Tran’s intellectual property. Required: Access the FASB Accounting Standards Codification at the FASB website (www.fasb.org) and select Basic View for free access. Identify the specific nine-digit Codification citation (XXX-XX-XX-XX) for accounting for variable consideration arising from sales-based royalties on licenses of intellectual property,…
A proprietorship has a calendar fiscal year and acquires a machine on April 1 of the current year. The machine has a cost of $54,000. The proprietor pays a contractor $19,000 to install the machine and pays a non-refundable provincial sales tax of $8,600. The machinery is Class 8 equipment with a CCA rate of 20%. Assuming that the opening UCC for Class 8 assets is $0, what is the maximum CCA that can be deducted for this machine in the current fiscal year? A. $16,320 B. $24,480 O C. $8,160 D. $21,900