On January 1, 2020, Edgar Company entered into a six-year lease with a lessor. Annual leasepayments of P1,200,000 including annual executory cost of P200,000 are payable at the endof each year. Edgar Company knows that the lessor expects a 10% return on the lease. EdgarCompany has a 12% incremental borrowing rate. The equipment is expected to have anestimated useful life of six years. In addition, a third party has guaranteed to pay the lessor aresidual value of P400,000 at the end of the lease.In the December 31, 2020 statement of financial position, what is the principal amount of thelease obligation?

a)Annual lease payments=P1,200,000 Annual executory payments=P200,000 PV of an ordinary annuity of 1…

Answered: On January 1, 2020, Edgar Company…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Rahul
On January 1, 2020 Arab Company leases a machine from GMC Corp. with 8 years useful life. The lease term is six-year requires payment of $87,000 at the beginning of each year. The incremental borrowing rate for the lessee is 10%; the lessor's implicit rate is 8% and is known by the lessee. If the fair value of the machine is $520.000, and the machine will be reverting to GMC Corp at the end of lease term. The present value of an annuity due of 1 for six years at 10% is 4.79079. The present value of an annuity due of 1 for six years at 8% is 4.99271. The annual depreciation for the leased machine at Arab Corp. as lessee is closed to: a. $43,366. b. $48,661. c. $72,394. d. $54,295.
Rayleigh Company had an asset costing P 5,239,000. The asset was leased on January 1, 2020 to another entity. Five annual lease payments are due each January 1, beginning January 1, 2020. The lessee guaranteed the P 2,000,000 residual value of the asset at the end of the lease term on December 31, 2024. The lessor’s implicit interest rate is 8%. The PV of 1 at 8% for periods is .68, and the PV of an annuity of 1 in advance at 8% for 5 periods is 4.31. What is the annual lease payment? Show your solution.
On January 2, 2019, Charminster Corporation leased six computers for use in its engineering department. The lease period is five years and the estimated economic life of the leased property is six years. The lease does not contain automatic title transfer and a bargain purchase option. Annual lease payments are payable in advance every January 2 in the amount of P90,000. The incremental borrowing rate for Charminster Corporation is 12% and the implicit interest rate (known to Charminster) is 10%. The company uses straight-line depreciation for this type of equipment. (Use two decimal places for the PV factors) 1. What is the capitalized cost of the right of use asset? 2. How much is the interest expense recognized in profit of loss for the year 2019?
On June 30, 2024, Georgia-Atlantic, Incorporated leased warehouse equipment from Builders, Incorporated The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $463,866 over a 4-year lease term (also the asset's useful life), payable each June 30 and December 31, with the first payment on June 30, 2024. Georgia-Atlantic's incremental borrowing rate is 11.0%, the same rate Builders used to calculate lease payment amounts. Builders manufactured the equipment at a cost of $2.6 million. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Determine the price at which Builders is "selling" the equipment (present value of the lease payments) on June 30, 2024. 2. What amount related to the lease would Builders report in its balance sheet on December 31, 2024 (ignore taxes)? 3. What line item amounts related to the lease would Builders report in its income statement for the year ended…
Dengar
Pharoah Company recently signed a lease for a new office building, for a lease period of 10 years. Under the lease agreement, a security deposit of $14,110 is made, with the deposit to be returned at the expiration of the lease, with interest compounded at 5% per year.
On December 31, 2020, Roe Company leased a machine from Colt Company for a five-year period Equal annual payments under the lease P1,050,000 including P50,000 annual executory cost and are due on December 31 of each year. The first payment was made on December 31, 2020, and the second payment was made on December 31, 2021. The five lease payments are discounted at 10% over the lease term. The present value of minimum lease payments at the inception of the lease and before the first annual payment was P4,170.000.On December 31, 2021, what amount should be reported as lease liability?
s
Long Live Company entered into a lease agreement for the use of a new machine on January 1, 2020. The lease agreement requires an annual payment of P1,500,000 for five years starting December 31, 2020. Long Live guaranteed a residual value of P711,090 at the end of the contract. The machine will revert to the lessor at the end of five years. The machine has an economic life of 10 years. The implicit rate for this lease is 16% where the present value of 1 for five periods is 0.4761 and the present value of an ordinary annuity of 1 is 3.2743. What is the balance of lease liability on December 31, 2020?

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS