East Company leased a new machine from North Company on January 1, 2021 under a lease with the following information: Annual rental payable at the beginning of each lease year P 400,000 Lease term 10 years Useful life of the machine 12 years Implicit interest rate 14% Incremental borrowing rate of the lessee 12% Initial direct costs 100,000 East Company has the option to purchase the machine on January 1, 2031 by paying P500,000 which approximates the expected fair value of the machine on the option exercise date. 1. At the commencement of the lease, what amount should be recognized as finance lease liability? 2. What would be the carrying amount of the leased asset in the records of East Company as of December 31, 2023? 3. The balance of the finance lease liability as of December 31, 2024 is:
East Company leased a new machine from North Company on January 1, 2021 under a lease with the following information: Annual rental payable at the beginning of each lease year P 400,000 Lease term 10 years Useful life of the machine 12 years Implicit interest rate 14% Incremental borrowing rate of the lessee 12% Initial direct costs 100,000 East Company has the option to purchase the machine on January 1, 2031 by paying P500,000 which approximates the expected fair value of the machine on the option exercise date. 1. At the commencement of the lease, what amount should be recognized as finance lease liability? 2. What would be the carrying amount of the leased asset in the records of East Company as of December 31, 2023? 3. The balance of the finance lease liability as of December 31, 2024 is:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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East Company leased a new machine from North Company on January 1, 2021 under a lease with the following information:
Annual rental payable at the beginning of each lease year P 400,000
Lease term 10 years
Useful life of the machine 12 years
Implicit interest rate 14%
Incremental borrowing rate of the lessee 12%
Initial direct costs 100,000
East Company has the option to purchase the machine on January 1, 2031 by paying P500,000 which approximates the expected fair value of the machine on the option exercise date.
1. At the commencement of the lease, what amount should be recognized as finance lease liability?
2. What would be the carrying amount of the leased asset in the records of East Company as of December 31, 2023?
3. The balance of the finance lease liability as of December 31, 2024 is:
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