Problem 6 Intermediate Accounting, Schemes and Mind Maps of Accounting

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Andres. Bacalso. Godmalin. Jabunan. Jumawid. Sabas. Taña.

ACTIVITY #4:

Intermediate Accounting 2: BSMA 2 MEC 32 MB GROUP 1

CHAP 8: P6 - # Sublease Sublease Fact Pattern: Fact Pattern: On Jan. 1, 20x1, Foggy Co. enters into a 10-year lease of a machine from Bamboo Inc. The On Jan. 1, 20x1, Foggy Co. enters into a 10-year lease of a machine from Bamboo Inc. The annual rent is Php 200,000 payable at the beginning of each year. The building has a annual rent is Php 200,000 payable at the beginning of each year. The building has a remaining useful life of 25 years. The interest rate implicit in the lease is 10%. remaining useful life of 25 years. The interest rate implicit in the lease is 10%. Case 1: Sublease as a Finance Lease Case 1: Sublease as a Finance Lease

4. On Jan. 1, 20x3, Foggy Co. subleases the building to Creek CO. for 8 years at an annual rent 4. On Jan. 1, 20x3, Foggy Co. subleases the building to Creek CO. for 8 years at an annual rent of Php 208,000 payable at beginning of each year. The first payment is due on Jan. 1, 20x3. of Php 208,000 payable at beginning of each year. The first payment is due on Jan. 1, 20x3. The interest rate implicit in the sublease is 9%. The interest rate implicit in the sublease is 9%. Requirement: Provide the journal entries on Jan. 1, 20x3. Jan. 1, 20x3 and Dec. 31, 20x3. Requirement: Provide the journal entries on Jan. 1, 20x3. Jan. 1, 20x3 and Dec. 31, 20x3.

SOLUTION

EXPLANATION

To solve for the present value of lease payments , we multiplied the annual

rent of 200,000 to its Present Value of Annuity Due of P1 @10%, n=10 which

is 6.759023816 and the result is P1,351,804.76.

To solve for the lease receivable on January 1, 20x3 , we multiplied the

annual rent of 208,000 to its Present Value of Annuity Due of P1 @9%, n=

which is 6.032952835 and the result is 1,254,854.

To get the carrying amount of the right-of-use asset on December 31,

20x3 , we divided the present value of lease payments by the remaining

portion of the lease term. The result then is P1,081,443.81.

ANSWERS

SOLUTION

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