Leases 331 December 30, 20x5, Entity A leased a new. machine from Cregg Corp. The following data relate to the lease transaction at the inception of the lease: Lease term 10 years Annual rental payable at the end of each lease year P100,000 12 years Useful life of machine 10% Implicit interest rate Fair value of the machine P700,000 The lease has no renewal option, and the possession of the machine reverts to Gregg when the lease terminates. At the inception of the lease, Entity A should record a lease liability of c. 630,000 d. 676,000 a. 0 b. 615,000 (AICPA) 5. On January 2, 20x6, Entity A entered into a ten-year non- cancellable lease requiring year-end payments of P100,000. Entity A's incremental borrowing rate is 12% while the lessor's implicit interest rate, known to Entity A, is 10%. Ownership of the property remains with the lessor at expiration of the lease. There is no bargain purchase option. The leased property has an estimated economic life of 12 years. What amount should Entity A capitalize for this leased property on January 2, 20x6? a. 1,000,000 b. 614,500 (AICPA) c. 565,000 d. 0 6. Entity A'entered into a nine-year finance lease on . December 31

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Leases
331
December 30, 20x5, Entity A leased a new. machine from
Cregg Corp. The following data relate to the lease transaction
at the inception of the lease:
Lease term
10 years
Annual rental payable at the end of each lease year P100,000
12 years
Useful life of machine
10%
Implicit interest rate
Fair value of the machine
P700,000
The lease has no renewal option, and the possession of the
machine reverts to Gregg when the lease terminates. At the
inception of the lease, Entity A should record a lease liability of
c. 630,000
d. 676,000
a. 0
b. 615,000
(AICPA)
5. On January 2, 20x6, Entity A entered into a ten-year non-
cancellable lease requiring year-end payments of P100,000.
Entity A's incremental borrowing rate is 12% while the lessor's
implicit interest rate, known to Entity A, is 10%. Ownership of
the property remains with the lessor at expiration of the lease.
There is no bargain purchase option. The leased property has
an estimated economic life of 12 years. What amount should
Entity A capitalize for this leased property on January 2, 20x6?
a. 1,000,000
b. 614,500
(AICPA)
c. 565,000
d. 0
6. Entity A'entered into a nine-year finance lease
on .
December 31
Transcribed Image Text:Leases 331 December 30, 20x5, Entity A leased a new. machine from Cregg Corp. The following data relate to the lease transaction at the inception of the lease: Lease term 10 years Annual rental payable at the end of each lease year P100,000 12 years Useful life of machine 10% Implicit interest rate Fair value of the machine P700,000 The lease has no renewal option, and the possession of the machine reverts to Gregg when the lease terminates. At the inception of the lease, Entity A should record a lease liability of c. 630,000 d. 676,000 a. 0 b. 615,000 (AICPA) 5. On January 2, 20x6, Entity A entered into a ten-year non- cancellable lease requiring year-end payments of P100,000. Entity A's incremental borrowing rate is 12% while the lessor's implicit interest rate, known to Entity A, is 10%. Ownership of the property remains with the lessor at expiration of the lease. There is no bargain purchase option. The leased property has an estimated economic life of 12 years. What amount should Entity A capitalize for this leased property on January 2, 20x6? a. 1,000,000 b. 614,500 (AICPA) c. 565,000 d. 0 6. Entity A'entered into a nine-year finance lease on . December 31
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