Problem 1-1 (AICPA Adapted)
On July 1, 2015, Kemp Company leased office space for five years at P150,000 a month. On that date
the entity paid the lessor the following amounts:
Rent security deposit 350,000
First month’s rent 150,000
Last month’s rent 150,000
Nonrefundable reimbursement to lessor for
modification to the lease premises 900,000
1,550,000
The entity made timely rental payments from August 1 through December 1, 2015.
What portion of payments to the lessor should be deferred on December 31, 2015?
a. 1,400,000
b. 1,310,000
c. 1,250,000
d. 500,000
Solution 10-1 Answer b
Leasehold improvement 900,000
Less: depreciation from July 1 to December 31, 2015
( 900,000/5 x 6/12 ) 90,000
Leasehold improvement, December 31, 2015 810,000
Rent security deposit 350,000
Last month’s rent 150,000
Total amount to be deferred 1,310,000
Problem 10-2 (AICPA Adapted)
On January 1, 2015, Park Company signed a 10-year operating lease for office space at P960,00 per year.
The lease included a provision for additional rent of 5% of annual company sale in excess of P5,000,000.
The sales for the year ended December 31, 2015 totaled P6,000,000. Upon execution of the lease , the
entity paid P240,000 as a bonus for the lease.
What is the rent expense for the year ended December 31, 2015?
a. 984,000
b. 1,010,000
c. 1,034,000
d. 1,250,000
Solution 10-2 Answer c
Annual rent 960,000
Additional rent ( 5% x 1,000,000) 50,000
Amortization of bonus ( 240,000/10) 24,000
Total rent expense 1,034,000