Reference no: EM132800532

Questions -

Q1. On January 2, 2019, Epson Company signed an 8-year non-cancellable lease for a new machine, requiring P120,000 annual payments at the beginning of each year. The machine has an estimated life of 12 years, with no salvage value. Title passes to Epson at the lease expiration date. Epson uses straight-line method of depreciation for all of its plant asses. Aggregate lease payments have a present value on January 2, 2017, of P864,000 based on an appropriate rate of interest. For 2018, how much should Epson record as depreciation expense for the leased machine?

Q2. Kennon Technologies, a dealer of machinery and equipment, leased equipment to Marcos Co. on July 1, 2017. This lease was accounted for as a sale by Kennon and as a purchase by Marcos.The lease is for a ten-year period equal to the useful life of the asset ending June 30, 2027, with payment of 250,000 beginning July 1, 2017.Kennon purchased the equipment for 1,337,500 on January 1, 2017 and established a list selling price of ?1,687,500 on the equipment. The present value on July 1, 2017 of the rent payments over the lease term discounted at 12% is 1,582,500.5. What amount of profit on sale should be recognized for the year ended December 31, 2017?

Q3. On January 1, 2019, Shak, Inc. signed a noncancelable lease for a sneaker shining machine. The machine has an estimated useful life of nine years. The term of the lease is a six-year term with title passing to Shak at the end of the lease. The agreement called for annual payments of P40,000 starting at the end of the first year. Assume aggregate lease payments were determined to have a present value of P200,000, based on implicit interest of 12 percent. What amount of interest expense should Shak report in its 2019 income statement from this lease transaction?