ANSWER WITH SOLUTION

1. An entity acquired an asset costing P3,165,000. The asset is leased on January 1, 2019 to another

entity. Five annual lease payments are due each December 31, beginning December 31, 2019. The

unguaranteed residual value of the asset at the end of the lease term on December 31,2023 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?

2. An entity is in the business of leasing new sophisticated equipment. The lessor expects a 12%

return on net investment. All leases are qualified as direct financing lease. At the end of the lease

term, the equipment will revert to the lessor. 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 - unguaranteed 600,000

Annual rental payable in advance at the beginning of each year 900,000

Initial direct cost incurred by the lessor 250,000

Useful life and lease term 8 years

Implicit interest rate 12%

a. What is the gross investment on the lease?

b. What is the net investment in the lease?

c. What is the total unearned interest income?

d. What amount of interest income should be recognized for the current year?

3. On January 1, 2019, an entity purchased a new machine for P6,000,000 for the purpose of leasing

it. The machine had an estimated 10-year life. On April 1, 2019, the entity leased the machine to

a lessee for three years at a monthly rental of P400,000. The lessee paid the rental for one year

of P4,800,000 on April 1, 2019 and additional paid P900,000 to the lessor as a lease bonus to

obtain the three-year lease. On April 1, 2019, the entity paid P300,000 to a broker as a finder fee.

What is the net rental income for 2019?

4. On July 1, 2019, an entity leased an equipment to a lessee under a 3 - year operating lease. Total

rent for the lease term is P3,600,000, payable P50,000 monthly for the first lease year, P75,000

monthly for the second lease year and P175, 000 monthly for the third lease year. All payments

were monthly for the second lease year and P175,000 monthly for the third lease year. All

payments were made when due. On June 30, 2021 what amount should be reported as accrued

rent receivable?