Assume that DBP Leasing Corp. and Minasugbo Inc. sign a lease contract effective on January 1, 2019 where DBP Leasing leases to Minasugbo a bulldozer. The terms and provisions of the lease contract and other pertinent date are as follows: The term of the lease is five years. The lease agreement is non-cancelable, requiring equal rental payments of P20,711.11 at the beginning of each year (annuity-due basis). The bulldozer has a fair value at the commencement of the lease of P100,000, an estimated economic life of five years, and a guaranteed residual value of P5,000. (Minasugbo expects that it is probable that the expected value of the residual value at the end of the lease will be greater than the guaranteed amount of P5,000.) The lease contains no renewal options. The bulldozer reverts to DBP Leasing at the termination of the lease. Minasugbo’s incremental borrowing rate is 5 percent per year. Minasugbo depreciates its equipment on a straight-line basis. DBP Leasing sets the annual rental rate to earn a rate of return of 4 percent per year; Minasugbo is aware of this rate. Required: Journal Entries for the Lessee for 2019, 2020, and 2024. Show solutions of arrived amounts in good form.
Assume that DBP Leasing Corp. and Minasugbo Inc. sign a lease contract effective on January 1, 2019 where DBP Leasing leases to Minasugbo a bulldozer. The terms and provisions of the lease contract and other pertinent date are as follows: The term of the lease is five years. The lease agreement is non-cancelable, requiring equal rental payments of P20,711.11 at the beginning of each year (annuity-due basis). The bulldozer has a fair value at the commencement of the lease of P100,000, an estimated economic life of five years, and a guaranteed residual value of P5,000. (Minasugbo expects that it is probable that the expected value of the residual value at the end of the lease will be greater than the guaranteed amount of P5,000.) The lease contains no renewal options. The bulldozer reverts to DBP Leasing at the termination of the lease. Minasugbo’s incremental borrowing rate is 5 percent per year. Minasugbo depreciates its equipment on a straight-line basis. DBP Leasing sets the annual rental rate to earn a rate of return of 4 percent per year; Minasugbo is aware of this rate. Required: Journal Entries for the Lessee for 2019, 2020, and 2024. Show solutions of arrived amounts in good form.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Assume that DBP Leasing Corp. and Minasugbo Inc. sign a lease contract effective on January 1, 2019 where DBP Leasing leases to Minasugbo a bulldozer. The terms and provisions of the lease contract and other pertinent date are as follows:
- The term of the lease is five years. The lease agreement is non-cancelable, requiring equal rental payments of P20,711.11 at the beginning of each year (annuity-due basis).
- The bulldozer has a fair value at the commencement of the lease of P100,000, an estimated economic life of five years, and a guaranteed residual value of P5,000. (Minasugbo expects that it is probable that the expected value of the residual value at the end of the lease will be greater than the guaranteed amount of P5,000.)
- The lease contains no renewal options. The bulldozer reverts to DBP Leasing at the termination of the lease.
- Minasugbo’s incremental borrowing rate is 5 percent per year.
- Minasugbo depreciates its equipment on a straight-line basis.
- DBP Leasing sets the annual rental rate to earn a
rate of return of 4 percent per year; Minasugbo is aware of this rate.
Required:
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