Leases Problems

PROBLEM NO.
Asian Transit Marine Corporation (Lessee) leases a forklift from NDP Leasing Corp. (Lessor). The lease,
signed on January 1, 2019, specifies that NDP grants right-of-use of the forklift to Asian Transit. The
lease terms are as follows:
1. Lease is non-cancelable, term of four years, equal rental payments of P11,182.24 at the
beginning of each year (annuity-due).
2. Forklift has a fair value of P40,000, economic life of four years, and no residual value.
3. Cost of forklift on NDP’s books is P30,000.
4. No renewal options. forklift reverts to NDP. Implicit rate of lessor is 8 percent and is known by
Asian Transit.
Required:
1. Prepare Journal Entries for both the Lessor and the Lessee from lease commencement until last
lease payment
PROBLEM NO. 2
Asian Transit Marine Corporation (Lessee) leases a forklift from NDP Leasing Corp. (Lessor). The lease,
signed on January 1, 2019, specifies that NDP grants right-of-use of the lift to Asian Transit. The lease
terms are as follows:
1. Lease is non-cancelable, term of four years, equal rental payments of P9,538.39 at the beginning
of each year (annuity-due)
2. Forklift has a fair value of P40,000, economic life of six years, and residual value of P8,000
(unguaranteed).
3. Cost of forklift on NDP’s books is P30,000.
4. No renewal options. Forklift reverts to NDP. Implicit rate of lessor is 8 percent and is known by
Asian Transit.
Required: Journal Entries for both the Lessor and the Lessee from lease commencement until last lease
payment
PROBLEM NO. 3
On January 1, 2020, Lessee Terminals Inc. started to lease a container terminal complex. Although the
complex has a composite life of 10 years, the lease runs for 5 years with a transfer of title to the lessee
upon expiration of the lease term. The annual lease payment is P1,000,000.00 payable at the end of
each year starting December 31, 2020. The lessee must also make an annual payment of P75,000 for
taxes and P125,000 for insurance. The lessee incurred initial direct cost of P150,000.00 including
P50,000 commission paid to the broker that arranged the lease. As an incentive to the lessee, the lessor
agreed to reimburse the lessee for the commission of P50,000.00. The contract was negotiated to assure
the lessor a 10% rate of return.
Required: Journal Entries for the Lessee for 2020 and 2021.
PROBLEM NO. 4
On January 1, 2020, Lessee Company leased a machine with the following provisions:
Annual Lease payments (paid on 1/1/2020 and every year thereafter) 1,000,000
Lease term 10 years
Useful life 15 years
Implicit interest rate in the lease 12%
The entity has an option to purchase the machine On January 1, 2030 by paying P200,000, which option
is reasonably certain to be exercised.
Required: Journal Entries for the Lessee for 2020 and 2021.
PROBLEM NO. 5
Assume that DBP Leasing Corp. and Minasugbo Inc. sign a lease contract effective on January 1, 2019
where DBP Leasing leases to Minasugbo a bulldozer. The terms and provisions of the lease contract and
other pertinent date are as follows:
• The term of the lease is five years. The lease agreement is non-cancelable, requiring equal rental
payments of P20,711.11 at the beginning of each year (annuity-due basis).
• The bulldozer has a fair value at the commencement of the lease of P100,000, an estimated
economic life of five years, and a guaranteed residual value of P5,000. (Minasugbo expects that
it is probable that the expected value of the residual value at the end of the lease will be greater
than the guaranteed amount of P5,000.)
• The lease contains no renewal options. The bulldozer reverts to DBP Leasing at the termination
of the lease.
• Minasugbo’s incremental borrowing rate is 5 percent per year.
• Minasugbo depreciates its equipment on a straight-line basis.
• DBP Leasing sets the annual rental rate to earn a rate of return of 4 percent per year;
Minasugbo is aware of this rate.
Required: Journal Entries for the Lessee for 2019, 2020, and 2024
PROBLEM NO. 6
Assume that DBP Leasing Corp. and Minasugbo Inc. sign a lease contract effective on January 1, 2019
where DBP Leasing leases to Minasugbo a bulldozer. The terms and provisions of the lease contract and
other pertinent date are as follows:
• The term of the lease is five years. The lease agreement is non-cancelable, requiring equal rental
payments of P20,711.11 at the beginning of each year (annuity-due basis).
• The bulldozer has a fair value at the commencement of the lease of P100,000, an estimated
economic life of five years, and a guaranteed residual value of P5,000. It is probable that the
residual value will be P3,000 instead of the guaranteed amount of P5,000.
• The lease contains no renewal options. The bulldozer reverts to DBP Leasing at the termination
of the lease.
• Minasugbo’s incremental borrowing rate is 5 percent per year.
• Minasugbo depreciates its equipment on a straight-line basis.
• DBP Leasing sets the annual rental rate to earn a rate of return of 4 percent per year;
Minasugbo is aware of this rate.
Required: Journal Entries for the Lessee for 2019, 2020, and 2024

Leases Problems

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PROBLEM NO.

Lease term 10 years

Useful life 15 years

Implicit interest rate in the lease 12%

• Minasugbo’s incremental borrowing rate is 5 percent per year.

• Minasugbo depreciates its equipment on a straight-line basis.

• Minasugbo’s incremental borrowing rate is 5 percent per year.

• Minasugbo depreciates its equipment on a straight-line basis.

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