Professional Documents
Culture Documents
1, 000, 000
10 years
15 years
12%
5.650
6.328
0.322
The entity has the option to purchase the machine on January 1, 2025 by pairing P200, 000
which is sufficiently lower than the expected fair value of the machine on January 1, 2025. At the
inception of the lease, it is reasonably certain that the option will be exercised.
Required:
Prepare journal entries on the books of Letty Company for 2015 and 2016.
7.606
8.367
Required:
Prepare journal entries on the books of Veronica Company for 2015.
4. Prepare journal entry on December 31, 2019 to record the return of the
equipment to the lessor assuming the fair value of the equipment is
only P300, 000.
5. Prepare journal entry on December 31, 2019 to record the return of the
equipment to the lessor assuming the fair value of the equipment is
P500, 000.
420, 000
300,
200,
4 years
6 years
7%
3.6243
.7629
The lease is cancelable but the cancelation will require a monetary penalty
equivalent to two years rental payments on the part of the lessee.
Included in the annual rental is an amount of P20, 000 to cover
reimbursement for insurance paid by the lessor.
The directors of Eve Company have indicated that they intend to return the
asset to Eden Company at the end of the lease term.
Required:
1. Determine whether the cancelable lease is a finance lease.
2. Prepare a table of amortization of the lease liability and interest
expense.
3. Prepare journal entries for 2015 and 2016 on the book of Eve Company.
4. Prepare journal entry to record the return of the equipment to the
lessor on December 31, 2019. Assume the fair value of the equipment
is P50, 000.
4, 000, 000
2, 465, 000
1, 300, 000
Depreciation has been recorded up to the end of the year, and no accrued
interest is involved.
On December 31, 2015, the entity decided to purchase the equipment for P1,
600, 000 and paid cash to complete the purchase.
Required:
Prepare journal entry to record the actual purchase of the equipment on the
books Macedon Company.
300,
300,
300,
300,
000
000
000
000
98,
78,
56,
31,
515
366
203
766
Reduction Balance of
liability
liability
985, 150
201, 485
783, 665
221, 634
562, 031
243, 797
318, 234
268, 234
50, 000
Required:
1. What amount would Troy Company disclose as future lease payments
in the notes to financial statements on December 31, 2015.
2. Prepare journal entry to record the finance lease on January 1, 2015.
3. Prepare journal entry on December 31, 2015 to record the minimum
lease payment and the executor cost.
4. Prepare journal entry to record the depreciation for 2015.
5. Prepare journal entry to record the minimum lease payment and the
executor cost on December 31, 2018.
6. Prepare journal entry to record the return of the machine to the lessor.
Assume the fair value is the same as the guaranteed residual value.
1,
1,
1,
1,
650,
596,
662,
584,
000
500
500
000
10 years
500,
15 years
10%
6.76
6.15
4, 000, 000
The lease has no renewal option, and the possession of the machine reverts
to Saxe Company when the lease terminates.
At the commencement of the lease, what amount should be recognized as
finance lease liability?
a. 4, 000, 000
b. 3, 380, 000
c. 3, 075, 000
d.
0
10 years
12
14%
5.95
0.27
East Company has the option to purchase the machine on January 1, 2025,
by paying P500, 000 which approximates the expected fair value of the
machine on the option exercise date.
What is the initial cost of the leased asset to be recognized by East
Company?
a.
b.
c.
d.
2,
2,
2,
1,
515,
380,
245,
980,
000
000
000
000
2,
3,
3,
4,
700,
000,
600,
000,
000
000
000
000
6.328
0.322
621,
648,
665,
697,
600
600
000
200
480,000
460,000
300,000
275,000
0
90,000
135,000
150,000
490,000
400,000
470,000
480,000
175,
140,
137,
171,
000
000
000
000
600,000
450,000
592,000
444,000
2,
2,
4,
4,
800,
912,
500,
680,
000
000
000
000
d. 2, 485, 000
1,
1,
1,
2,
025,
115,
125,
900,
000
000
000
000
a. 4, 578, 000
b. 4, 641, 000
c.
700, 000
d.
0
3,
3,
2,
2,
170,
150,
853,
487,
000
000
000
000
3.890
0.650
4,
4,
3,
3,
862,
407,
562,
107,
000
000
000
000
6,
6,
5,
5,
335,
140,
754,
968,
000
000
000
500
Problem 11-41
On January 1, 2015, Harrow Company signed a five year noncancelable
equipment lease with annual payments of P1,000,000 beginning December
31, 2105. The entity treated this transaction as a finance lease. The five
lease payments have a present value of P3,790,000 on January 1, 201 based
on a implicit interest rate of 10%. What amount should be reported as
interest expense for 2015?
a. 379,000
b. 279,000
c. 242,000
d.
0
(KULANG 11-42-45)
(CHAPTER 12- HANNAH)
1. Under a sales type lease, what is the meaning of gross investment in the lease?
a. Present value of minimum lease payments
b. Absolute amount of minimum lease payments
c. Present value of minimum lease payments plus
unguaranteed residual value
present value of
c. The lessor recognizes a dealers profit at lease inception and interest revenue
over the lease term.
d. The lessor recognizes a dealers profit at lease inception and interest revenue
over the life of the asset
6. The profit on a finance lease transaction for lessors who are manufacturers or
dealers should
a. Not be recognized separately from finance
income
9. The excess of the fair value of leased property at the inception of the lease over
the carrying amount shall be recognized by the dealer lessor as
Unearned income from a sales type lease
b. Unearned income from a direct financing lease
c. Manufacturers profit from a sales type lease
10. In a lease that is recorded as a sales type lease by the lessor, interest revenue
a. Does not arise
b. Shall be recognized over the period of the lease using the interest method
c. Shall be recognized over the period of the lease using the straight line method
d. Shall be recognized in full as revenue at the inception of the lease
a. 900,000
b. 780, 000
c. 240,000
d. 333,600
Interest Revenue
a.
720,000
176,000
b.
720,000
146,000
c.
45,000
176,000
d.
45,000
146,000
a. 204, 492
b. 604, 492
c. 355,080
d. 755,080
cost
of
the
ferry
12,555,000
payments
in
Estimated
2,000,000
residual
Implicit
12%
interest
advance
value
rate
January 1,
Lease term
years
20
of
at
12%
8.37
for
20
periods
9,625,000
d.
8,525,000
20,000
d.
Hazel company leased machinery to Anne company on July 1, 2015 for a tenyear period expiring June 30, 2025. Equal annual payments under the lease
are P750,000 and are due on July 1 of each year. The first payment was
made on July 1, 2015. The implicit rate of interest is 9%. The cash selling
price of the machinery is P5,250,000 and the carrying amount is P4,650,000.
The lease is appropriately recorded as a sales type lease.
1. What is the gross profit on sale for 2015?
a. 600,000
b. 300,000
c. 472,500
d.
Problem 13-23(IAA)
On December 31,2015, Benz Company, a lessor, actually sold a machinery
that it had been leasing under a sales type lease. On January 1, 2015 after
receipt of the lease payment for the year, the following account balances
were associated with the lease:
Gross lease receivable
Unearned interest income
5,850,000
1,000,000
The interest rate implicit in the lease is 10%. On December 31,2015, Benz
Company actually sold the leased machinery to the lessee for P3,250,00
cash.
1. What is the interest income for 2015?
a. 585,000
b. 485,000
c. 325,000
d.
a. 3,500,000
b. 3,710,000
c. 3,290,000
d. 3,920,000
3. What is the loss on sale of the leased asset to be recognized on July 1,
2017?
a. 710,000
b. 500,000
c. 290,000
d.
a. Deferred and amortized over the period for which the asset is expected
to be used.
b. Recognized immediately in profit or loss.
a.
b.
c.
d.
As
As
As
As
loss immediately
gain immediately
deferred loss to be amortized over the lease term
deferred gain to be amortized over the lease term
a.
b.
c.
d.
.
Problems 14-2 (ACP)
Required:
Prepare Journal entries for 2015 to record the sale and leaseback transaction
in the books of German Company and Sterling Company.
Sale price
500,000
Machinery
1,000,000
Accumulated Depreciation
Annual rental
450,000
90,000
Required:
Prepare journal entry to record the sale and leaseback transaction on the
books of Canada Company and Saigon Company.
Sale price
Fair value machine
Carrying amount of machine
Annual rental
Remaining life of machine
Lease term
5,000,000
6,500,000
7,000,000
80,000
15 years
5 years
Required:
Prepare journal entries for 2015 to record the sale and leaseback on the
books of Juan Company
Problem 14-5 (IFRS)
On January 1, 2015, Pedro Company sold a machine and immediately leased
it back at an annual rental that was determine to be sufficiency lower than
market rent.
The following date relate to the sale and leased back transaction;
Sale price
Fair value of machine
Carrying amount of machine
Annual rental
Remaining life of machine
Lease term
4,000,000
5,300,000
5,000,000
50,000
10 years
2 years
Required:
Prepare journal entries for 2015 to record the sale and leaseback transaction
on the books of Pedro Company.
Sale price
Fair value of machine
Carrying amount of machine
Annual rental
Remaining life of machine
Lease term
4,600,000
4,300,000
3,500,000
90,000
12 years
3 years
Required:
Prepare journal entries for 2015 to record the sale and leaseback transaction
on the books of Hazel Company.
Sale price
4,500,000
4,000,000
4,200,000
80,000
10 years
2 years
Required:
Prepare journal entries for 2015 to record the sale and leaseback transaction
on the books of seller-lease.
360,000
Carrying Amount
330,000
341,000
12 years
In the Income statement for 2015, what amount should be reported as gain
from the sale of the machine?
a.
32,100
b.
30,000
c.
4,100
d.
a. 425, 000
b. 475, 000
c.200, 000
d.250, 000
d. 140, 000
Problem 14-13 (AICPA Adapted)
On June 30, 2015, Lee Company sold equipment to an unaffiliated entity for
P5, 500,000. The equipment had a carrying amount of P5, 000,000 and a
remaining life for 10 years. That same day, Lee Company leased back at P15,
000per month for 2 years with no option renew the lease or to repurchase
the equipment. The present value of the lease payments using the
appropriate interest rate was P318, 650 on June 30, 2015.
What amount should be reported a rent expense for the year ended
December 31, 2014?
a. 110, 000
b. 90, 000
c. 50, 000
d. 40, 000
Problem 14-14 (AICPA Adapted)
On December 31, 2015, Lane Company sold equipment to Noll Company and
simultaneously leased it back for 12 years. Pertinent information on this
date is as follows:
Sale price
480, 000
Carrying amount
360, 000
15 years
On December 31, 2015, what amount should be reported as gain from sale of
equipment?
a. 120,000
b. 112,000
c. 110,000
d.
What is the amount that Cheliff Company should report as deferred gain from
the sale of the tractor on December 31, 2015 in the reporting package for
use in consolidation with the head office account?
a. 1, 950,000
b. 1, 820,000
c. 1, 737, 500
d.
Problem 14-18(IFRS)
In an attempt to alleviate liquidity problems, Banco Company entered into an
agreement on January 1, 2015 to sell a processing plant to another entity for
P 3,500,000 which is the fair value of the plant. At the date of sale, the plant
had a carrying amount of P 2,750,000. Banco Company immediately leased
the processing plant back from the buyer. The terms of the lease agreement
were:
Annual payment in arrears, commencing
December 31, 2015
Reimbursement to the lessor for maintenance
Cost (included in the annual payment)
Lease term
Economic life of plant
Implicit interest rate
700,000
35,000
6 years
8 years
10%
Problem 14-19(IAA)
150,00
135,00
15,000
0
Problem 14-20(IFRS)
Sensible Company sold a machinery on January 1, 2015 at the fair value of P
2,500,000 when the carrying amount was P 2,000,000. Sensible company
leased the asset back on that date for the remaining useful life of 5 years.
Lease payments are P 700,000 on January 1 each year.
What amount of gain on disposal should be recognized in the 2015 income
statement?
a.
b.
c.
d.
500,000
100,000
250,000
0
1,500,000
1,000,000
500,000
0
Problem 14-21(IAA)
On January 1, 2015, Baker Company sold equipment it had recently
purchased to an unaffiliated entity for its fair value of P 5,700,000. The
equipment had a carrying amount of P 4,500,000 and a remaining life of five
years. On that same day, Baker Company leased back the equipment at P
1,350,000 per year payable in advance for a 5-year period. The lessors
implicit interest rate in the lease is 10%. Baker Company used the double
declining balance method of depreciation. What amount should be reported
as unearned income on the sale and leaseback on December 31, 2015?
a.
b.
c.
d.
1,200,000
960,000
720,000
0
Problem 14-22(IAA)
On January 1, 2015, Halo Company sold a computer system to Lark Company
for P 2,550,000 and immediately leased the computer system back. The
computer was carried on Halos books at a value of P 2,250,000. The term of
the noncancelable lease is 10 years and title will transfer to Halo at the end
of the lease term. The lease agreement required equal rental payments of P
415,000 at the end of each year. The incremental borrowing rate for halo is
12% but Halo is aware that Lark set the annual rental to ensure a rate of
return of 10%, the computer has a fair value of P 2,550,000 on January 1,
2015 and an estimated economic life of 12 years. Halo paid executor cost of
P 45,000 for the current year. Which of the following would be recorded by
Halo on December 31, 2015?
A.
B.
C.
D.
I only
II only
Both I and II
Neither I and II
d.
When an entity makes a distinction between current and
noncurrent assets and
liabilities, it shall not classify
deferred tax assets and liabilities as current.
Problem 15-3 Multiple choice (IFRS)
1. Which of the following statements in relation to deferred tax assets or
liabilities is TRUE?
I. Deferred tax liabilities are the amounts of income taxes payable in
future periods in respect of taxable temporary differences.
II. Deferred tax assets are the amounts of income taxes recoverable in
future periods in respect of deductible permanent differences.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
2. Deferred tax assets are the amount of income taxes recoverable in future
periods in respect of
a. Carryforward of unused tax losses only
b. Taxable temporary differences and carryforward of unused tax
losses
c. Deductible temporary differences and carryforward of unused tax
losses
d. Permanent differences
3. All of the following must be disclosed separately, except?
a. The tax bases of major items on which deferred tax has been
calculated.
b. The amount of deductible temporary differences for which no
deferred tax asset is
recognized.
c. The amount of taxable temporary differences associated with
investments in subsidiaries and associates for which no deferred tax
liability is recognized.
d. The amount of income tax relating to each component of other
comprehensive income.
4. Which of the following statements in relation to deductible temporary
differences is true?
I. Interest expenses accrued but included in taxable profit on a cash
basis shall be classified under deductible temporary differences.
a. The excess of the deferred tax liability over the deferred tax assets
as a noncurrent liability.
b. The excess of the deferred tax liability over the deferred tax asset as
current liability.
c. The deferred tax liability as noncurrent liability.
d. The deferred tax liability as current liability.
9. The financial reporting basis of a plant asset exceeded the tax basis
because a different method of reporting depreciation is used for financial
accounting purposes and tax purposes. What is reported if there are no other
temporary differences?
a. Current tax asset
b. Deferred tax asset
c. Deferred tax liability
d. Current tax payable
10. A deferred tax liability is computed using
a. Current tax law regardless of expected or enacted future tax law
b. Expected future tax law regardless of whether enacted or not
c. Current tax law unless a future enacted law is different
d. Either current or expected future tax law regardless of whether the
expected future tax law is enacted or not
Problem 15-5 Multiple Choice (IAA)
1. The purpose of interperiod tax allocation is to
a. Allow reporting entities to fully utilize tax losses carried forward from
a previous year.
b. Allow reporting entities whose tax liabilities vary significantly from
year to year to smooth payments to taxing agencies.
c. Recognize an asset or liability for the tax consequences of temporary
differences that exist at the end of the reporting period.
d. Amortize the deferred tax liability shown on the statement of
financial position.
2. The result of interperiod tax allocation is that
a. Wide fluctuations in an entitys tax liability payments are eliminated.
b. The expense shown in the income statement is equal to the deferred
taxes shown in the
statement of financial position.
c. Tax liability shown in the statement of financial position is equal to
the deferred taxes
shown in the previous years statement of financial
position plus the income tax expense
shown in the income statement.
3. Taxable income
a. Differs from accounting income due to differences in interperiod tax
allocation
b. Differs from accounting income due to differences in interperiod tax
allocation and
permanent differences.
c. Is based on international financial reporting standards.
d. Is reported in the income statement.
4. Which of the following statements is true about interperiod tax allocation?
a. It arises because certain revenue and expense items appear in the
income statement
either before or after they are included in the tax
return.
b. It is required for the cumulative effect of accounting changes but not
for prior period errors.
c. The purpose is to allocate income tax expense evenly over a number
of accounting periods.
d. The purpose is to relate the income tax expense to the items which
affect the amount of tax.
5. Which of the following statements is correct about the presentation of
deferred tax assets and liabilities?
a. Current deferred tax assets are netted against current deferred tax
liabilities.
b. All noncurrent deferred tax assets are netted against noncurrent
deferred tax liabilities.
c. Deferred tax assets are never netted against deferred tax liabilities.
d. Deferred tax assets are netted against deferred tax liabilities if they
relate to the same tax liability.
Problem 15-7 (AICPA Adapted)
1. Which statement is true regarding reporting deferred income taxes in the
financial statements?
a. Deferred tax assets are always netted against deferred tax liabilities.
b. Deferred taxes of one jurisdiction are offset against another
jurisdiction in the netting process.
c. Deferred tax assets and liabilities may only be classified as
noncurrent.
d. Deferred tax assets and liabilities are classified as current and
noncurrent based on expiration date.
2. When accounting for income taxes, a temporary difference occurs in which
of the following scenarios?
a. An item is included in the calculation of net income in one year and
taxable income in a different year.
(1,000,000)
1,100,000
( 300,000)
( 200,000)
There are no temporary differences at the beginning of the year. The income
tax rate is 30 %.
Required:
1. Prepare journal entry to record the income tax expense and deferred tax
for 2015.
2. Present the income tax expense in the income statement.
6,000,000
7,000,000
8,000,000
Required:
1. Prepare journal entries to record the income tax and deferred tax for 2015
and 2016
2. Present the income tax expense in the income statement for 2015 and
2016.
Accounting income
Taxable income
2015
2016
5,500,000
7,000,000
5,000,000
7,500,000
Required:
1. Prepare journal entries to record the income tax and deferred tax for 2015
and 2016.
2. Present the income tax expense in the income statement for 2015 and
2016.
4,000,000
200,000
300,000
450,000
100,000
300,000
350,000
100,000
30%
Required:
1.
2.
3.
4.
5.
600,000
1,500,000
900,000
The cost recovery method is used for income tax purposes and the entity
reported construction income on the tax return as follows:
2015
2016
2017
3,000,000
This is the only timing difference income before construction income and
tax as follows:
2015
2016
2017
2,400,000
3,600,000
3,200,000
Required:
Prepare journal entries to record income tax and deferred tax for 2015, 2016,
and 2017. The income tax rate is 30%.
Problem 15-15 (IAA)
On January 1, 2015, aye Company purchased an equipment for P1,000,000.
The equipment has an estimated useful life of 4 years and no residual value.
The entity used the straight line method of depreciation for accounting
purposes and the SYD method for tax purposes.
The comparative depreciation charges for each of the four years are:
2015
2016
2017
2018
Straight line
250,000
250,000
250,000
250,000
SYD
400,000
300,000
200,000
100,000
Actual
20,000
80,000
200,000
Required:
Prepare journal entries for 2015, 2016, 2017 and 2018 to record income tax
expense and deferred income tax arising from the temporary differences.
The income rate is 30%.
2. Present the deferred tax asset on December 31, 2016.
400,000
300,000
Difference
4,000,000
3,000,000
0
2,000,000
The pretax accounting income for 2015 is P13,000,000. The tax rate is 30% and
assume there are no deferred taxes on January 1, 2015.
Required:
1. Prepare journal entries to record the deferred tax liability, deferred tax asset and
current tax expense.
2. Present the income tax expense in the income statement.
Carrying Amount
1,500,000
1,650,000
120,000
Tax base
1,750,000
1,250,000
0
150,000
The depreciation rates for accounting and taxation are 15% and 25% respectively.
The deposits are taxable when received and warranty costs are deductible when
paid,
An allowance for doubtful accounts of P250,000 has been raised against accounts
receivable for accounting purposes but such accounts are deductible only when
written off as uncollectible.
The entity showed net income of P8,000,000 in the income statement for 2015.
There are no temporary differences at the beginning of the current year. The tax
rate is 30%.
Required:
1. Determine the deferred tax liability on December 31, 2015.
2. Determine the deferred tax asset on December 31, 2015.
3. Determine the net deferred tax expense or benefit.
4. Determine the current tax expense for 2015.
5. Determine the total income tax expense for 2015.
10,000,000
5,000,000
4,000,000
3,000,000
6,000,000
2,000,000
The value for tax purposes for property plant and equipment was P7, 000, 000 and
P4,000,000 respectively.
The entity has made a provision for inventory obsolescence of P2, 000, 000 which is
not allowable for tax purposes.
Further, an impairment charge against trade receivable of P1, 000, 000 has been
made. This charge will not be allowed in the current year for tax purposes.
West company reported net income of P9, 000,000 for 2015 there no temporary
differences at the beginning of the current year. The tax rate is 30%.
Required: