On December 31, 2021, Tracy Co. signed a 4-year, noncancelable lease for a right of use of machine requiring P150,000 annual payments beginning December 31, 2021. The annual payments include payment for insurance and property taxes amounting to P20,000. On the same data, Tracy Co. paid P40,000 incremental costs that are directly attributable to negotiating and arranging a lease. The machine has a useful life of 8 years, with no salvage value. The rate implicit on the lease is 10%. Tracy Co. Guarantee a residual value of P50,000 at the end of the lease term. The fair value of the machine at the incpetion of the lease amounted to P518,561. 5. How much is the initial cost of the right of use asset on December 31, 2021? a. P487,447 b. P495,975 6. How much is the interest expense in 2022? a. Nil C. P527,447 d. P577,447 C. P52,745 d. P57,745 b. P35,745 7. How much is the lease-related liability to be shown as current in the statement of financial position on December 31, 2021? a. P357,447 b. P263,192 a. P357,447 b. P263,192 C. P94,255 d. P35,745 8. How much is the lease-related liability to be shown as non-current in the statement of financial position on December 31, 2021? C. d. P94,255 P35,745

On December 31, 2021, Tracy Co. signed a 4-year, noncancelable lease for a right of use of machine requiring P150,000 annual payments beginning December 31, 2021. The annual payments include payment for insurance and property taxes amounting to P20,000. On the same data, Tracy Co. paid P40,000 incremental costs that are directly attributable to negotiating and arranging a lease. The machine has a useful life of 8 years, with no salvage value. The rate implicit on the lease is 10%. Tracy Co. Guarantee a residual value of P50,000 at the end of the lease term. The fair value of the machine at the incpetion of the lease amounted to P518,561. 5. How much is the initial cost of the right of use asset on December 31, 2021? a. P487,447 b. P495,975 6. How much is the interest expense in 2022? a. Nil C. P527,447 d. P577,447 C. P52,745 d. P57,745 b. P35,745 7. How much is the lease-related liability to be shown as current in the statement of financial position on December 31, 2021? a. P357,447 b. P263,192 a. P357,447 b. P263,192 C. P94,255 d. P35,745 8. How much is the lease-related liability to be shown as non-current in the statement of financial position on December 31, 2021? C. d. P94,255 P35,745

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 December 31, 2021, Tracy Co. signed a 4-year, noncancelable lease for a right of use of machine requiring
P150,000 annual payments beginning December 31, 2021. The annual payments include payment for insurance
and property taxes amounting to P20,000. On the same data, Tracy Co. paid P40,000 incremental costs that are
directly attributable to negotiating and arranging a lease. The machine has a useful life of 8 years, with no
salvage value. The rate implicit on the lease is 10%. Tracy Co. Guarantee a residual value of P50,000 at the end
of the lease term. The fair value of the machine at the incpetion of the lease amounted to P518,561.
5. How much is the initial cost of the right of use asset on December 31, 2021?
a. P487,447
c. P527,447
d.
P577,447
b. P495,975
6. How much is the interest expense in 2022?
a. Nil
C.
P52,745
b. P35,745
d. P57,745
7. How much is the lease-related liability to be shown as current in the statement of financial position on
December 31, 2021?
a. P357,447
b. P263,192
8. How much is the lease-related liability to be shown as non-current in the statement of financial position
on December 31, 2021?
a. P357,447
b. P263,192
C.
P94,255
d. P35,745
C.
d.
P94,255
P35,745

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