Neal Company entered into a nine-year lease on a warehouse on Dec. 31, 2019. Lease payments of 520,000 which included executory cost of 20,000 is due annually, beginning on Dec. 31, 2020 and every Dec. 31 thereafter. The cost of restoring the underlying asset to its original condition as required by the contract is estimated at the present value of 200,000.
Neal Company entered into a nine-year lease on a warehouse on Dec. 31, 2019. Lease payments of 520,000 which included executory cost of 20,000 is due annually, beginning on Dec. 31, 2020 and every Dec. 31 thereafter. The cost of restoring the underlying asset to its original condition as required by the contract is estimated at the present value of 200,000.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Neal Company entered into a nine-year lease on a warehouse on Dec. 31, 2019.
Lease payments of 520,000 which included executory cost of 20,000 is due annually, beginning on Dec. 31, 2020 and every Dec. 31 thereafter.
The cost of restoring the underlying asset to its original condition as required by the contract is estimated at the present value of 200,000.
The interest rate implicit in the lease is 9%. The PV of an ordinary annuity of 1 for nine years at 9% is 5.60.
1. What amount should be reported as lease liability on December 31,2020?
a. ₱ 4,500,000
b. ₱ 2,912,000
c. ₱ 4,680,000
d. ₱ 2,800,000
2. What is the initial recognition of the right of use asset?
a. ₱ 3,112,000
b. ₱ 2,800,000
c. ₱ 3,000,000
d. ₱ 4,700,000
3. What is the carrying value of the right of use asset on December 31, 2021?
a. ₱ 2,520,000
b. ₱ 2,488,889
c. ₱ 2,750,000
d. ₱ 2,666,667
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