Question

On January 1,2020, Fred Corporation purchased a new machine for P4,800,000 and leased it to George...

On January 1,2020, Fred Corporation purchased a new machine for P4,800,000 and leased it to George Corporation the same day. The machine has an estimated 12-year life and will be depreciated P400,000 per year. The lease is for a three-year period at an annual rental of P850,000. Additionally, George paid P300,000 to Fred as a lease bonus to obtain the three-year lease. Fred incurred insurance expense of P80,000 for the leased machine during 2020.
The gross rentals of Fred on the leased asset for 2020 is _____.
The net rent income of Fred on the leased asset for 2020 is _____.

Business   Accounting   
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Answer #1

Gross rent is the amount of rent stipulated in a lease, it is the combined amount of monthly payments received in an year.

Gross rent doesnot take into account other costs like insurance, taxes and broker fees.

SUMMARY: Hence gross rentals of Fred for leased asset for 2020 is P850,000

Net income = Gross income - Expenses

Lease bonus received is treated as an asset for accounting purpose and it is amortized using the straight line method over the life of the lease.

SUMMARY: Net rent income of Fred on leased asset for 2020 is P850,000+(P300,000/3)-P80,000

Net rent income= P870,000

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