On 1st January 2019, LMN SAOG entered an agreement to lease an item of plant from a manufacturer for 4 years. The lease requires four annual payments in advance of OMR 200,000 each commencing from 1st January 2019. The plant would have a useful life of four years with no residual value. The present value of the total lease payments is OMR 700,000. The cost of capital used is 10%. Chose the correct journal entry for initial recognition of the lease? O a. Right to use asset (Debit) 500,000; Lease Liability (Credit) 500,000. O b. Lease Liability (Debit) 700,000; Right to use asset (Credit) 700,000. O . Right to use asset (Debit) 700,000; Lease Liability (Credit) 500,000; and bank (Credit) 200,000. O d. Plant (Debit) 700,000; Liability (Credit) 700,000.

On 1st January 2019, LMN SAOG entered an agreement to lease an item of plant from a manufacturer for 4 years. The lease requires four annual payments in advance of OMR 200,000 each commencing from 1st January 2019. The plant would have a useful life of four years with no residual value. The present value of the total lease payments is OMR 700,000. The cost of capital used is 10%. Chose the correct journal entry for initial recognition of the lease? O a. Right to use asset (Debit) 500,000; Lease Liability (Credit) 500,000. O b. Lease Liability (Debit) 700,000; Right to use asset (Credit) 700,000. O . Right to use asset (Debit) 700,000; Lease Liability (Credit) 500,000; and bank (Credit) 200,000. O d. Plant (Debit) 700,000; Liability (Credit) 700,000.

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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Concept explainers

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

Question

On 1st January 2019, LMN SAOG entered an agreement to lease an item of plant from a manufacturer for 4 years. The lease requires four annual
payments in advance of OMR 200,000 each commencing from 1st January 2019. The plant would have a useful life of four years with no residual
value. The present value of the total lease payments is OMR 700,000. The cost of capital used is 10%. Chose the correct journal entry for initial
recognition of the lease?
O a. Right to use asset (Debit) 500,000; Lease Liability (Credit) 500,000.
O b. Lease Liability (Debit) 700,000; Right to use asset (Credit) 700,000.
O .Right to use asset (Debit) 700,000; Lease Liability (Credit) 500,000; and bank (Credit) 200,000.
O d. Plant (Debit) 700,000; Liability (Credit) 700,000.

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