Scribd Logo
Upload

Welcome to Scribd!

  • 125 views

    A. On April 1, 2015, Ben Ten Company Leased Equipment To Ironman Corporation. The

    Uploaded by

    Avox Everdeen
    Ben Ten leased equipment to Ironman for 8 years with annual payments of P80,000. It is a direct finance lease for Ben Ten. The implicit interest rate is 23.5%. Ironman recorded the asset and liability at P359,730. In 2015, Ironman recorded interest expense, depreciation expense, and reduced the liability. Ben Ten recorded a finance lease receivable, discounted the receivable, and recognized interest revenue. If the residual value was not guaranteed, Ironman would record the asset at P342,736 and take depreciation of P32,132 in 2015. The entries for Ben Ten are unaffected.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    A. On April 1, 2015, Ben Ten Company Leased Equipment To Ironman Corporation. The

    Uploaded by

    Avox Everdeen
    125 views2 pages
    Ben Ten leased equipment to Ironman for 8 years with annual payments of P80,000. It is a direct finance lease for Ben Ten. The implicit interest rate is 23.5%. Ironman recorded the asset and liability at P359,730. In 2015, Ironman recorded interest expense, depreciation expense, and reduced the liability. Ben Ten recorded a finance lease receivable, discounted the receivable, and recognized interest revenue. If the residual value was not guaranteed, Ironman would record the asset at P342,736 and take depreciation of P32,132 in 2015. The entries for Ben Ten are unaffected.

    Original Description:

    Original Title

    acc 1

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Ben Ten leased equipment to Ironman for 8 years with annual payments of P80,000. It is a direct finance lease for Ben Ten. The implicit interest rate is 23.5%. Ironman recorded the asset and liability at P359,730. In 2015, Ironman recorded interest expense, depreciation expense, and reduced the liability. Ben Ten recorded a finance lease receivable, discounted the receivable, and recognized interest revenue. If the residual value was not guaranteed, Ironman would record the asset at P342,736 and take depreciation of P32,132 in 2015. The entries for Ben Ten are unaffected.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    125 views2 pages

    A. On April 1, 2015, Ben Ten Company Leased Equipment To Ironman Corporation. The

    Uploaded by

    Avox Everdeen
    Ben Ten leased equipment to Ironman for 8 years with annual payments of P80,000. It is a direct finance lease for Ben Ten. The implicit interest rate is 23.5%. Ironman recorded the asset and liability at P359,730. In 2015, Ironman recorded interest expense, depreciation expense, and reduced the liability. Ben Ten recorded a finance lease receivable, discounted the receivable, and recognized interest revenue. If the residual value was not guaranteed, Ironman would record the asset at P342,736 and take depreciation of P32,132 in 2015. The entries for Ben Ten are unaffected.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    A. On April 1, 2015, Ben Ten Company leased equipment to Ironman Corporation.

    The
    following information pertains to this lease:

     The term of non-cancelable lease is 8 years with no renewal option.


     The annual payment is P80,000; first payment is due April 1, 2015.
     Estimated useful life of the equipment is 10 years.
     The cash price of the equipment is P359,730 at April 1, 2015, which is the same as
    the carrying amount of the asset in the books of Ben Ten.
     The residual value at the end of the lease term, which is guaranteed by Ironman, is
    P80,000.

    Both Ben Ten and Ironman use the calendar year as their reporting period.

    Required:
    a. What type of lease is this from the standpoint of Ben Ten?
    Direct finance lease because the cash price is equal to the carrying value of the
    asset.
    b. What is the implicit interest rate on this lease?
    Trial and error approach:
    359,730=80,000 x PV of annuity due of 1 @23.5%, n=9
    359,730=357,520 closest
    The implicit interest rate is 23.5%
    c. Prepare the entries in the books of Ironman for the years 2015 and 2016.
    Date Annual Interest Reduction in Present value
    payment expense capital
    04/01/2015 - 359,730
    04/01/2015 80,000 - 80,000 279,730
    04/01/2016 80,000 65,737 14,263 265,467
    04/01/2017 80,000 62,385 17,615 247,852

    2015
    April01 ROU-equipment 359,730
    Financed lease liability 359,730
    Financed lease liability 80,000
    Cash 80,000
    Dec.31 interest expense 49,303
    Interest payable 49,303
    (65,737 x 9/12=49,303)
    Depreciation expense 26,225
    Accumulated depreciation 26,225
    (359,730-80,000)/8=34,966 x 9/12=26,225
    d. Prepare the entries in the books of Ben Ten for the years 2015 and 2016.
    2015
    April01 financed lease receivable 720,000
    Equipment for lease 359,730
    Discount on finance lease receivable 180,270
    Cash 80,000
    Finance lease receivable 80,000
    Dec.31 discount on finance lease receivable 49,303
    Interest revenue 49,303
    2016
    April01 cash 80,000
    Finance lease liability 80,000
    Discount on finance lease liability 16,434
    Interest revenue 16,434
    Dec.31 discount on finance lease receivable 46,789
    Interest revenue 46,789

    e. Assume that the residual value of P80,000 is not guaranteed. At what amount should
    the asset be recorded by Ironman? How much depreciation should Ironman take up
    on this equipment for the year 2015?
    The asset should be recorded at P342, 736
    80,000 x 4.2842= P342, 736
    The depreciation for 2015 is (342,726 /8) x 9/12 = 32,132
    f. Assume that the residual value of P80,000 is not guaranteed. What difference, if any,
    will be noted in the books of Ben Ten in recording the lease transactions?
    There is no difference in journal entries, as for the lessor under direct finance lease
    whether the residual value is guaranteed or unguaranteed it does not affect the
    journal entries.

    You might also like