Answered: How much is the balance of the lease…

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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On January 1, 2019, Lotte Company enters into a 10-year lease of machinery with annual lease payments of P800,000 payable at the beginning of each year. The contract specifies that the lease payments will increase every two years on the basis of the increase in consumer price index for the preceding 24 months. The consumer price index at the commencement date is 140. The rate implicit in the lease is not readily determinable. Lessee’s incremental borrowing rate is 8% per annum, which reflects the fixed rate at which lessee could borrow an amount similar to the value of the right-of-use asset, in the same currency, for a ten-year term and with similar collateral. At the beginning of third year (January 1, 2021) of the lease, the consumer price index is 160.

How much is the balance of the lease liability as of December 31, 2021?

P5,674,397

P3,698,303

P4,226,634

P5,140,920

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