TALITE, BEA ELLAH ANDREA V.

BSMA 2 STUBCODE: 133 TIME: 4:00-7:00

ANSWERS
PROBLEMS
PROBLEM 11- 1

1. Table of Amortization

Date Payment (9%) Interest Principal Present value

1/1/2020 2 334 000
12/31/2020 600 000 210 060 389 940 1 944 060
12/31/2021 600 000 174 965 425 035 1 519 025
12/31/2022 600 000 136 712 463 288 1 055 737

2. Journal entries for 2020

Jan. 1 Right of use asset 2 334 000

Lease liability 2 334 000

Dec. 31 Interest expense 210 060

Lease liability 389 940
Cash 600 000

Dec. 31 Depreciation (2 334 000 / 5 years) 466 800

Accumulated depreciation 466 800

3. Remeasurement of lease liability

The revised leased liability is remeasured using the new implicit interest rate of
12%

Annual rent of remaining 2 years of old lease term 600 000

Multiply by PV annuity of an ordinary annuity of 1 of 12% for 2 periods 1.690
Present value- January 1, 2023 1 014 000

Annual rental for 5 years starting January 800 000

Multiply by PV annuity of an ordinary annuity of 1 of 12% for 5 periods 3.605
Present value- January 1, 2025 2 884 000
Multiply by PV annuity of an ordinary annuity of 1 of 12% for 2 periods 0.797
Present value- January 1, 2023 2 298 548

The present value of the new rentals on January 1, 2025 is rediscounted on the
date of extension on January 1, 2023.

Present value of remaining rentals of old lease term 1 014 000

Present value of rentals of extended lease term 2 298 548
Total present value- January 1, 2023 3 312 548
Present value- December 31, 2022 (see table) (1 055 737)
Increase in lease liability on January 1, 2023 2 256 811
Right of use asset – January 1, 2020 2 334 000
Accumulated Depreciation – December 31, 2022 (466 800 x 3 years) (1 400 400)
Carrying amount- December 31, 2022 933 600
Increase in liability on January 1, 2023 2 256 511
New carrying amount- January 1, 2023 3 190 411

4. New table of amortization

Date Payment (12%) Interest Principal Present value

1/1/2023 3 312 548
12/31/2023 600 000 397 506 202 494 3 110 054
12/31/2024 600 000 373 206 226 794 2 883 260
12/31/2025 800 000 345 991 454 009 2 429 251
12/31/2026 800 000 291 510 508 490 1 920 761
12/31/2027 800 000 230 491 569 509 1 351 252
12/31/2028 800 000 162 150 637 850 713 402
12/31/2029 800 000 86 598 713 402 -

5. Journal entries for 2023

1. To remeasure the lease liability on January 1, 2023:

Right of use asset 2 256 811
Lease liability 2 256 811

2. To record the annual rental on December 31,2023:

Interest expense 397 506
Lease liability 202 794
Cash 600 000

3. To record the annual depreciation based on the new carrying amount:

Depreciation (3 190 411 / 7 years) 455 773
Accumulated depreciation 455 773

The total lease term is 10 years minus 3 years expired equals remaining term of 7
years.
PROBLEM 11- 2

1. Lease liability for January 1, 2020

Annual rental for first two years 200 000

Multiply by PV annuity of an ordinary annuity of 1 of 8% for 2 periods 1.783
Present value- January 1, 2020 356 600

Annual rental for the next three years 300 000

Multiply by PV annuity of an ordinary annuity of 1 of 8% for 3 periods 2.577
Present value- January 1, 2022 773 100
Multiply by PV annuity of an ordinary annuity of 1 of 8% for 2 periods 0.857
Present value- January 1, 2020 662 547

Present value of annual rentals for 2 years 356 000

Present value of annual rental for the next 3 years 662 547
Lease liability- January 1, 2020 1 019 147

2. Cost of right of use asset

Initial lease liability 1 019 147

Initial direct cost 100 000
Estimated restoration cost 50 000
Total cost of right of use asset 1 169 147

3. Depreciation (1 169 147 / 5) 233 829

4. Table of amortization

Date Payment (8%) Interest Principal Present value

1/1/2020 1 019 147
12/31/2020 200 000 81 532 118 468 900 679
12/31/2021 200 000 72 054 127 946 772 733
12/31/2022 300 000 61 819 238 181 534 552
12/31/2023 300 000 42 779 257 221 277 331
12/31/2024 300 000 22 186 227 331 -

5. Journal entries for 2020

Right of use asset 1 069 147

Lease liability 1 019 147
Cash 100 000
Estimated liability- restoration cost 50 000

Depreciation 233 829

Accumulated depreciation 233 829
Interest expense 81 352
Lease liability 118 468
Cash 200 000

6. Journal entry for December 31, 2022

2022
December 31 Interest expense 61 819
Lease liability 238 181
Cash 300 000

PROBLEM 11- 3
1. Journal entries for 2020

Lease liability- January 1, 2020 (200 000 x 6.1944) 1 238 880

Jan. 1 Right of use asset 1 238 880

Lease liability 1 238 880

Dec. 31 Interest expense(1 238 880 x 12%) 148 666

Lease liability 53 334
Cash 200 000

Depreciation (1 238 880/ 12) 103 240

Accumulated depreciation 103 240

2. Journal entries for 2023

Additional lease liability- January 1, 2023 (300 000 x 5.759) 1 727 700

Jan. 1 Right of use asset 1 727 700

Lease liability 1 727 700

Dec. 31 Interest expense (1 727 700 x 10%) 171 770

Lease liability 123 230
Cash 300 000

Depreciation (1 727 700/ 9) 191 967

Accumulated depreciation 191 967
PROBLEM 11- 4

1. Table of Amortization

Date Payment (10%) Interest Principal Present value

1/1/2020 951 000
12/31/2020 300 000 95 100 204 990 746 100
12/31/2021 300 000 74 610 225 390 520 710

2. Journal entries for 2020

2020
Jan. 1 Right of use asset 951 000
Lease liability 951 000

Dec. 31 Interest expense 95 100

Lease liability 204 990
Cash 300 000

Depreciation (951 000/ 4) 237 750

Accumulated depreciation 237 750

3. Reameasurement of lease liability

Present value of lease payments on January 1, 2022 as a result of modification

(300 000 x 3.605) 1 081 500
Carrying amount on January 1, 2022 per schedule (520 710)
Increase in lease liability 560 790

4. New table of amortization

Date Payment (12%) Interest Principal Present value

1/1/2022 1 081 500
12/31/2022 300 000 129 780 170 220 911 280
12/31/2023 300 000 109 354 190 646 720 634
12/31/2024 300 000 86 476 213 524 507 110
12/31/2025 300 000 60 853 239 147 267 963
12/31/2026 300 000 32 037 267 963 -
5. Journal entries for 2022
2022
January 1 Right of use asset 560 790
Lease liability 560 790

December 31 Interest expense 129 780

Lease liability 170 220
Cash 300 000

Depreciation 207 258

Accumulated depreciation 207 258

Cost 951 000

Accumulated depreciation –Dec. 31, 2021 (237 750 x 2) (475 500)
Carrying amount- Jan. 1, 2022 475 500
Increase in lease liability 560 790
Adjusted carrying amount 1 036 290

Depreciation for 2022 (1 036 290 / 5) 207 258

PROBLEM 11- 5

1. Table of Amortization

Date Payment (10%) Interest Principal Present value

1/1/2020 758 160
12/31/2020 200 000 75 816 124 184 633 976
12/31/2021 200 000 63 398 136 602 497 374

2. Journal entries for 2020

2020
Jan. 1 Right of use asset 758 160
Lease liability 758 160

Dec. 31 Interest expense 75 816

Lease liability 124 184
Cash 200 000

Depreciation (758 160 / 5) 151 632

Accumulated depreciation 151 632
3. Termination of gain or loss

Decrease in floor space (5 000 – 3 750) 1 250

Decrease in scope of the lease (1 250 / 5 000) 25%

Cost 758 160

Accumulated depreciation –Dec. 31, 2021 (151 632 x 2) (303 264)
Carrying amount- Dec. 31, 2021 454 896

Decrease in lease liability (497 374 x 25%) 124 344

Decrease in carrying amount of right of use asset (454 896 x 25%) (113 724)
Termination gain 10 260

4. Reameasurement of lease liability

Present value of lease payments on January 1, 2022 as a result of modification

(150 000 x 2.5771) 386 565
Remaining lease liability (497 374 – 124 344) (373 030)
Increase in lease liability 13 535

5. New table of amortization

Date Payment (8%) Interest Principal Present value

1/1/2022 386 565
12/31/2022 150 000 30 925 119 075 267 490
12/31/2023 150 000 21 399 128 601 138 889
12/31/2024 150 000 11 111 138 889 -

6. Journal entries for 2022

2022
January 1 Lease liability 124 344
Accumulated depreciation (303 264 x 25%) 75 816
Right of use of asset (758 160 x 25%) 189 540
Termination gain 10 620

Right of use asset 13 535

Lease liability 13 535

December 31 Interest expense 30 925

Lease liability 119 075
Cash 150 000
Depreciation 118 236
Accumulated depreciation 118 236
Remaining carrying amount (454 896 – 113 724) 341 172
Increase in lease liability 13 535
Adjusted carrying amount of right of use asset 354 707

PROBLEM 11- 6

Lease liability – January 1, 2020 (100 000 x 4.2124) 421 240

1. Table of Amortization

Date Payment (6%) Interest Principal Present value

1/1/2020 421 240
12/31/2020 100 000 25 274 74 726 346 514
12/31/2021 100 000 20 791 79 209 267 305

2. Journal entries for 2020

2020
Jan. 1 Right of use asset 421 240
Lease liability 421 240

Dec. 31 Interest expense 25 274

Lease liability 74 726
Cash 150 000

Depreciation (421 240/ 5) 84 248

Accumulated depreciation 84 248

3. Reameasurement of lease liability

Modified lease liability – January 1, 2022 (80 000 x 2.5771) 206 168
Carrying amount on January 1, 2022 (267 305)
Decrease in lease liability (61 137)

4. New table of amortization

Date Payment (8%) Interest Principal Present value

1/1/2022 206 168
12/31/2022 80 000 16 493 63 507 142 661
12/31/2023 80 000 11 413 68 587 74 074
12/31/2024 80 000 5 926 74 074 -
5. Journal entries for 2022
2022
January 1 Lease liability 61 137
Right of use asset 61 137

December 31 Interest expense 16 493

Lease liability 63 507
Cash 80 000

Depreciation (191 607 / 3) 63 869

Accumulated depreciation 63 869

Cost of right of use asset 421 240

Accumulated depreciation – Jan. 1, 2022 (84 248 x 2) (168 496)
Carrying amount- Jan. 1, 2022 252 744
Decrease in lease liability (61 137)
Adjusted carrying amount 191 607

PROBLEM 11- 7

Question 1
Present value for the first 3 years (300 000 x 2.49) 747 000

Present value for next five years (400 000 x 3.79) 1 516 000
Multiply by PV of 1 at 10% for 3 periods 0.75
Present value- January 1, 2020 1 137 000
Present value for first 3 years 747 000
Lease liability- January 1, 2020 c.1 884 000

Question 2
Interest expense for 2020 (1 884 000 x 10%) a. 188 400

Question 3 and Question 4

Date Payment (10%) Interest Principal Present value

1/1/2020 1 884 000
12/31/2020 300 000 188 400 111 600 1 772 400
12/31/2021 300 000 177 240 122 760 1 649 640
12/31/2022 300 000 164 964 135 036 1 514 604
12/31/2023 400 000 3. a. 151 460 248 540 4. b.1 266 064
PROBLEM 11- 8

Question 1
Date Payment (10%) Interest Principal Present value
1/1/2020 2 274 000
12/31/2020 600 000 227 400 372 600 1 901 400
12/31/2021 600 000 190 140 409 860 c.1 491 540

Present value = Lease liability x PV of ordinary annuity of1 at 10% for 5 periods
= 600 000 x 3. 79 = 2 274 000
Question 2
The revised leased liability is remeasured using the new implicit interest rate of 8%

Annual rent of remaining 2 years of old lease term 600 000

Multiply by PV annuity of an ordinary annuity of 1 of 8% for 3 periods 2.58
Present value- January 1, 2022 1 548 000

Annual rental for 5 years starting January 800 000

Multiply by PV annuity of an ordinary annuity of 1 of 8% for 5 periods 3.99
Present value- January 1, 2025 3 192 000
Multiply by PV annuity of an ordinary annuity of 1 of 8% for 2 periods 0.79
Present value- January 1, 2022 2 521 680

Present value of annual rentals for 2 years 1 548 000

Present value of annual rental for 5 years 2 521 680
Lease liability- January 1, 2020 d. 4 069 680

Question 3

Lease liability – January 1, 2022 (800 000 x 3.99) 3 192 000

Present value of old lease liability (remaining) 1 491 540
Total 4 683 540
Option cost (741 000)
Carrying amount of right of use asset a. 3 942 540