3. On January 1, 20x1, Lessee enters into a 5-year lease of equipment. Annual rental is P300,000 payable at the end of Leases each year. The implicit interest rate in the lease is 9%. The contract provides for a purchase option with an exercise price of P500,000. Lessee is reasonably certain to exercise the purchase option at the end of the lease term. The remaining useful life of the underlying asset is 8 years. Lessee uses the straight line method of depreciation. Requirements: a. Prepare the amortization table for the lease liability. b. Provide the journal entries on the following dates: January 1, 20x1 and December 31, 20x1.

3. On January 1, 20x1, Lessee enters into a 5-year lease of equipment. Annual rental is P300,000 payable at the end of Leases each year. The implicit interest rate in the lease is 9%. The contract provides for a purchase option with an exercise price of P500,000. Lessee is reasonably certain to exercise the purchase option at the end of the lease term. The remaining useful life of the underlying asset is 8 years. Lessee uses the straight line method of depreciation. Requirements: a. Prepare the amortization table for the lease liability. b. Provide the journal entries on the following dates: January 1, 20x1 and December 31, 20x1.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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A lessee company signed a lease for equipment from a lessor on January 1, Year 1. The lease requires equal rental payments of $18,820 at the beginning of each year of the term. The PV of the lease payments is $108,950. The company pays all executory costs directly to third parties. The appropriate interest rate is 8.65%. Assume IFRS 16 applies. Both the lessor and lessee have December 31 year ends. How much wil be the balance of the Lease Liability in the lessee's books at the end of Year 1 after all adjusting entries assuming (1) the fair value of the equipment equals the PV of the lease payments and (2) any interest is accrued directly to the Lease Liability? 1. $88,134 2. $90,582 3. $93,030 4. $95,478 5. $97,926
On 1 July 2020, Table Ltd leased equipment from Chair Ltd. The following are details of the equipment and the lease contract: On 1 July 2020 equipment has a fair value of $110,000 (at fair value in Chair Ltd’s accounts) Lease term is 5 years, useful life of the equipment is 6 years, and Table Ltd will return the equipment at the end of the lease term Lease payments are in advance and will be paid on 1 July of each year, starting 1 July 2020, with $24,000 as the annual payment Residual value of the equipment at the end of the lease term is $8,000, with Table Ltd guaranteeing 75% of the residual value The interest rate implicit in the lease arrangement is 6%. In setting up the lease arrangement Table Ltd incurred costs of $2,354, while Chair Ltd incurred costs of $3,141. Required: a) Prepare the necessary journal entries for Table Ltd on 1 July 2020. b) Calculate interest and depreciation expense incurred on 30 June…