On January 1, 2018, ABC Company entered into a five-year nonrenewable operating lease, commencing on that date, for office space. The office space has a useful life of 50 years and the lease specifies a rent of P20,000 per month. The lessor paid an initial direct cost of P6,000 and incurred insurance and property tax expense in 2018 totaling P30,000. The depreciation of the office is P30,000. How much is the net income to be recognized by the lessor as a result of this lease in 2018?

On January 1, 2018, ABC Company entered into a five-year nonrenewable operating lease, commencing on that date, for office space. The office space has a useful life of 50 years and the lease specifies a rent of P20,000 per month. The lessor paid an initial direct cost of P6,000 and incurred insurance and property tax expense in 2018 totaling P30,000. The depreciation of the office is P30,000. How much is the net income to be recognized by the lessor as a result of this lease in 2018?

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 10MC: On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring...

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On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring payments of 10,000 at the beginning of each year. The machine cost 40,000 and has a useful life of 8 years with no residual value. Kerns implicit interest rate is 10%, and present value factors are as follows: Present value for an annuity due of 1 at 10% for 6 periods4.791 Present value for an annuity due of 1 at 10% for 8 periods5.868 Kern appropriately recorded the lease as a sales-type lease. At the inception of the lease, the Lease Receivable account balance should be: a. 60,000 b. 58,680 c. 48,000 d. 47,910
Determining Type of Lease and Subsequent Accounting On January 1, 2019, Caswell Company signs a 10-year cancelable (at the option of either party) agreement to lease a storage building from Wake Company. The following information pertains to this lease agreement: 1. The agreement requires rental payments of 100,000 at the beginning of each year. 2. The cost and fair value of the building on January 1, 2019, is 2 million. The storage building has not been specialized for Caswell. 3. The building has an estimated economic life of 50 years, with no residual value. Caswell depreciates similar buildings according to the straight-line method. 4. The lease does not contain a renewable option clause. At the termination of the lease, the building reverts to the lessor. 5. Caswells incremental borrowing rate is 14% per year. Wake set the annual rental to ensure a 16% rate of return (the loss in service value anticipated for the term of the lease). Caswell knows the implicit interest rate. 6. Executory costs of 7,000 annually, related to taxes on the property, are paid by Caswell directly to the taxing authority on Dec. 31 of each year. Required: 1. Determine what type of lease this is for the lessee. 2. Prepare appropriate journal entries on the lessees books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2019 and 2020.
Saludares Company leased a machinery on January 1, 2021 with the following information: Annual rental payable at the end of each year is P1,000,000. A P300,000 payment is made to the lessor to obtain a long-term lease. At the end of the lease term, dismantling and restoring the machinery is required by contract. The present value of this obligation is P330,000. Annual executory costs paid by the lessee amount to P50,000. Lease term is 4 years and the useful life of the machinery is 8 years. The implicit rate is 10%. The PV of an ordinary annuity of 1 at 10% for 4 periods is 3.17 and the PV of 1 at 10% for 4 periods is 0.68. 1. What is the depreciation for 2021?2. What is the lease liability on December 31, 2021?
On June 1, 2018, ABC Company entered into a 5-year nonrenewable lease, commencing on that date, for office space and made the following payments to the lessor: Bonus to obtain a lease for P300,000; First months rent for P100,000 and Last month’s rent for P100,000. Compute the total rent income for 2018.
On January 1, 2021, Veronica Company negotiated a 15-year lease for a building with useful life of 20 years. Before occupancy, the lessee incurred leasehold improvement of P600,000 with useful life 5 years. The lessee is required to restore the building upon expiration of the lease. The present value of estimated cost of restoration is P644,000 discounted at 7%. Annual payments of P1,000,000 are payable to the lessor on December 31 of each of the 15 years of the lease term. The lease was negotiated to assure the lessor a 10% rate of return. PV of an ordinary annuity of 1 at 10% for 15 periods PV of an annuity of 1 in advance at 10% for 15 periods 7.606 8.367 Required: Prepare journal entries on the books of Veronica Company for 2021.
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Michael Company leased equipment to Hay Corporation on July 1, 2012 for an eight-year period expiring June 30, 2020. Equal payments under the lease are P600,000 and are due on July 1 of each year. The first payment was made on July 1, 2012. The cash selling price of the equipment is P3,520,000 which reflects its present value, and the cost of the equipment on Michael's accounting records is P2,800,000. The lease is appropriately recorded as a dealer's lease. What is the amount of the resulting gross profit from this sale at the inception of the lease? a. P45,000 b. P90,000 c. P720,000 d. P1,280,000
Michael Company leased equipment to Hay Corporation on July 1, 2012 for an eight-year period expiring June 30, 2020. Equal payments under the lease are P600,000 and are due on July 1 of each year. The first payment was made on July 1, 2012. The cash selling price of the equipment is P3,520,000 which reflects its present value, and the cost of the equipment on Michael's accounting records is P2,800,000. The lease is appropriately recorded as a dealer's lease. What other revenue should Michael report in his income statement for year ended December 31, 2012? a. P292,000 b. P146,000 c. P176,000 d. P352,000 e. P0
On January 2, 2020, Guitar Company leased a warehouse to Violin Corporation under an operating lease for ten years at Php80,000 per year payable on the first day of each lease year. Guitar Company agrees to pay the lessee's relocation/moving cost as an incentive to Violin Corporation for entering into the new lease. The moving cost is Php6,000. What amount of rent income should Guitar Company recognize in its 2020 profit or loss? *
Michelle Company leased equipment to May Corporation on July 1, 2012 for an eight-year period expiring June 30, 2020. Equal payments under the lease are P600,000 and are due on July 1 of each year. The first payment was made on July 1, 2012. The cash selling price of the equipment is P3,520,000 which reflects its present value, and the cost of the equipment on Michelle's accounting records is P2,800,000. The lease is appropriately recorded as a dealer's lease. What is the amount of the resulting gross profit from this sale at the inception of the lease? a. P45,000 b. P90,000 c. P720,000 d. P1,280,000 Use the same information given above, What other revenue should Michelle report in her income statement for year ended December 31, 2012? a. P292,000 b. P146,000 c. P176,000 d. P352,000 e. P0
On January 1, 2021, Maroon Company entered into a five-year nonrenewable operating lease, commencing on that date, for office space. The office space has a useful life of 50 years and the lease specifies a rent of P20,000 per month. Lessee paid P60,000 lease bonus to obtain the lease and security deposit of P40,000 to be refunded upon expiration of the lease. How much is the total rent income in 2021?
On January 1, 2021, Elle Company acquired a machine by signing a four-year lease. Annual rentals are payable at the beginning of each year starting January 1, 2021. The asset’s useful life is 6 years, at the end of which the asset’s scrap value is expected to be P80,000. Elle Company uses the straight-line method to depreciate this asset. The lessor’s implicit interest rate, known to Elle is 10%. Elle appropriately recorded the machine and the related liability on January 1, 2021, at P697,380. How much is the periodic annual rental payment in the lease contract? (Use four decimal places)