Practice Problem Set #5

Due Mar 16 at 3:30pm Points 51 Questions 17

Available until Mar 16 at 11:59pm Time Limit None

Instructions
Compute for what is being asked in each problem. All answers should be in numeric format. For
example, 460,000 or 9,000. If your answer is negative, your answer must look like this, -460,000. Don't
forget to place comma. Lastly, round off final answers to whole number.

This quiz was locked Mar 16 at 11:59pm.

Attempt History
Attempt Time Score

LATEST Attempt 1 129 minutes 42 out of 51

Score for this quiz: 42 out of 51

Submitted Mar 16 at 3:28pm
This attempt took 129 minutes.

Question 1 3 / 3 pts

(For question numbers 1 and 2)

Rick NV recorded a right of use asset for P300,000 as a result of lease on

December 31, 2018. Rick’s incremental borrowing rate is 8%, and the
implicit rate of the lessor was not known at the commencement of the
lease. Rick made the first lease payment of P48,337 on December 31,
2018. The lease requires 8 annual payments. The equipment has a useful
life of 8 years with no residual value.

How much will be debited to Lease Liability on December 31, 2019?

 Correct!
28,204

orrect Answers Between 28,199 and 28,209

0 (with margin: 0)
0 (with margin: 0)
0 (with margin: 0)

Question 2 3 / 3 pts

How much depreciation expense should be recognized for the year 2019?

Correct!
37,500

orrect Answers 37,500 (with margin: 0)

0 (with margin: 0)
0 (with margin: 0)
0 (with margin: 0)

Question 3 3 / 3 pts

(For question numbers 3 to 5)

Delaney leases an automobile with a fair value of P10,000 from Simon

motors on the following terms:

Non-cancellable term of 50 months

Rental of P200 per month (at the beginning of each month). The PV
factor at 0.5% per month is 44.3635.
Delaney guarantees a residual value of P1,180 (the present value at
0.5% per month is P920). Delaney expects the probable residual
value to be P1,180 at the end of the lease term.
Estimated economic life of the automobile is 60 months.
Delaney’s incremental borrowing rate if 6%. Simon’s implicit rate is
unknown.
 What is the present value of the lease payments to determine the lease
liability?

Correct!
8,873

orrect Answers Between 8,868 and 8,878

0 (with margin: 0)
0 (with margin: 0)
0 (with margin: 0)

Question 4 3 / 3 pts

How much depreciation expense should be recorded for the first month?

Correct!
177

orrect Answers Between 172 and 182

0 (with margin: 0)
0 (with margin: 0)
0 (with margin: 0)

Question 5 3 / 3 pts

Suppose that instead of P1,180, Delaney expects the residual value to be

only P500. How much will be the PV of lease payments?

Correct!
9,403

orrect Answers Between 9,398 and 9,408

0 (with margin: 0)
0 (with margin: 0)
0 (with margin: 0)
 Question 6 0 / 3 pts

(For question numbers 6 to 8)

On January 1, 2018, Haley Corporation sold a Machine to Quick Finance

for P140,000 and immediately leased it back. The machine was carried on
Haley’s books at P112,000. The term of the lease is 3 years, there is no
bargain purchase option, and title does not transfer to Haley at lease-end.
The lease requires three equal rental payments of P34,784 at the end of
each year (first payment on January 1, 2019). The appropriate rate of
interest is 6%, the machine has a useful life of 5 years, and the residual
value at the end of the lease term is expected to be P56,000, none of
which is guaranteed.

What amount is recognized as gain or loss on disposal of asset? (Note: If

it is a loss, use negative sign. Example: -1,000.)

ou Answered
28,000

orrect Answers Between 9,399 and 9,409

0 (with margin: 0)
0 (with margin: 0)
0 (with margin: 0)

Question 7 0 / 3 pts

At what amount should right of use asset is recognized on January 1,

2018?

ou Answered
92,978

orrect Answers Between 74,377 and 74,387

 0 (with margin: 0)
0 (with margin: 0)
0 (with margin: 0)

Question 8 0 / 3 pts

What is the balance of lease liability (net amount) as of December 31,

2018?

ou Answered
63,773

orrect Answers Between 98,552 and 98,562

0 (with margin: 0)
0 (with margin: 0)
0 (with margin: 0)

Question 9 3 / 3 pts

Maris Co. purchased a machine on January 1, 2018, for P2,500,000 for

the express purpose of leasing it. The machine is expected to have a five-
year life, no salvage value, and be depreciated on a straight-line monthly
basis. On April 1, 2018, under a cancellable lease, Maris leased the
machine to Dunbar Company for P750,000 a year for a four-year period
ending March 31, 2022. Maris incurred total maintenance and other
related costs under the provisions of the lease of P25,000 relating to the
year ended December 31, 2018. Harley paid P750,000 to Maris on April 1,
2018. Assuming an operating lease, what should be the income before
income taxes derived by Maris Co. from this lease for the year ended
December 31, 2018?

Correct!
162,500

orrect Answers 162,500 (with margin: 0)

 0 (with margin: 0)
0 (with margin: 0)
0 (with margin: 0)

Question 10 3 / 3 pts

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 executory costs) 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?

Correct!
850,000

orrect Answers 850,000 (with margin: 0)

0 (with margin: 0)
0 (with margin: 0)
0 (with margin: 0)

Question 11 3 / 3 pts

(For question numbers 11 and 12)

On January 2, 2018, Hernandez, Inc. signed a ten-year noncancelable

lease for a heavy duty drill press. The lease stipulated annual payments
of P300,000 starting at the beginning of the first year, with title passing to
Hernandez at the expiration of the lease. Hernandez treated this
transaction as a finance lease. The drill press has an estimated useful life
of 15 years, with no salvage value. Hernandez uses straight-line
amortization for all of its plant assets. Aggregate lease payments were
 determined to have a present value of P1,800,000, based on implicit
interest of 10%.

In its 2018 income statement, what amount of interest expense should

Hernandez report from this lease transaction?

Correct!
150,000

orrect Answers 150,000 (with margin: 0)

0 (with margin: 0)
0 (with margin: 0)
0 (with margin: 0)

Question 12 3 / 3 pts

In its 2018 income statement, what amount of depreciation expense

should Hernandez report from this lease transaction?

Correct!
120,000

orrect Answers 120,000 (with margin: 0)

0 (with margin: 0)
0 (with margin: 0)
0 (with margin: 0)

Question 13 3 / 3 pts

(For question numbers 13 to 16)

Gage Co. purchases land and constructs a service station and car wash
for a total of P540,000. At January 2, 2018, when construction is
completed, the facility and land on which it was constructed are sold to a
major oil company for P600,000 and immediately leased from the oil
company by Gage. Fair value of the land at time of the sale was P60,000.
 The lease is a 10-year, noncancellable lease. Gage uses straight-line
depreciation for its other various business holdings. The economic life of
the facility is 15 years with zero salvage value. Title to the facility and land
will pass to Gage at termination of the lease. A partial amortization
schedule for this lease is as follows:

Payments Interest Amortization Balance

Jan. 2, 2018 600,000.00

Dec. 31, 2018 97,646.71 60,000.00 37,646.71 562,353.29

Dec. 31, 2019 97,646.71 56,235.33 41,411.38 520,941.91

Dec. 31, 2020 97,646.71 52,094.19 45,552.52 475,389.39

What is the discount rate implicit in the amortization schedule presented

above? (Note: No need to place %. Example: 2.)

Correct!
10

orrect Answers 10 (with margin: 0)

0 (with margin: 0)
0 (with margin: 0)
0 (with margin: 0)

Question 14 3 / 3 pts

The total lease-related expenses recognized by the lessee during 2019

is?

Correct!
92,235

orrect Answers 92,235 (with margin: 0)

0 (with margin: 0)
0 (with margin: 0)
0 (with margin: 0)
 Question 15 3 / 3 pts

What is the amount of the lessee’s liability to the lessor after the
December 31, 2020 payment?

Correct!
475,389

orrect Answers Between 475,384 and 475,394

0 (with margin: 0)
0 (with margin: 0)
0 (with margin: 0)

Question 16 3 / 3 pts

The total lease-related income recognized by the lessee during 2019 is?

Correct!
0

orrect Answers 0 (with margin: 0)

0 (with margin: 0)
0 (with margin: 0)
0 (with margin: 0)

Question 17 3 / 3 pts

Haystack, Inc. manufactures machinery used in the mining industry. On

January 2, 2018 it leased equipment with a cost of P480,000 to Silver
Point Co. The 5-year lease calls for a 10% down payment and equal
annual payments of P175,820 at the end of each year. The equipment
has an expected useful life of 5 years. Silver Point’s incremental
borrowing rate is 10%, and it depreciates similar equipment using the
double-declining balance method. The selling price of the equipment is
 P780,000, and the rate implicit in the lease is 8%, which is known to Silver
Point Co. What is the book value of the leased asset at December 31,
2018?

Correct!
468,000

orrect Answers 468,000 (with margin: 0)

0 (with margin: 0)
0 (with margin: 0)
0 (with margin: 0)

Quiz Score: 42 out of 51