On January 1, 2020, Lessee Company entered into a lease with Lessor Company for a new equipment. The lease stipulates that annual payments of P1,000,000 will be made for five years startingbDecember 31,2020. Lessee Company guaranteed a residual value of P474,060 at the end of the 5 year period. Th equipment will revert to the lessor at the lease expiration. The omplicit interest rate for the lease is 16% after considering the guaranteed residual value. The economic life of the equipment is 10 years. The present value factors at 16% for five periods are: Present value of 1 0.4761 Present value of an ordinary annuity of 1 3.2743 Required: Prepare a schedule of the annual payments showing reduction of liablity every year. Prepare a journal entries on the bools of Leese Company for 2020 and 2021. Prepare a journal entry on December 31,2024, end of lease term, to record the return of the requirement to the lessor. Assume the fair value of the equipment is equal to the guaranteed residual value. Prepare journal entry on December 31,2024 to record the return of the equipment to the lessor assuming the fair value of the equipment is only P300,000. Prepare journal entry on December 31,2024 to record the return of the equipment to the lessor assuming the fair value of the equipment is P500,000.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Concept explainers

Question

Problem 10-5

On January 1, 2020, Lessee Company entered into a lease with Lessor Company for a new equipment.

The lease stipulates that annual payments of P1,000,000 will be made for five years startingbDecember 31,2020.

Lessee Company guaranteed a residual value of P474,060 at the end of the 5 year period. Th equipment will revert to the lessor at the lease expiration.

The omplicit interest rate for the lease is 16% after considering the guaranteed residual value.

The economic life of the equipment is 10 years. The present value factors at 16% for five periods are:

Present value of 1 0.4761

Present value of an ordinary annuity of 1 3.2743

Required:

Prepare a schedule of the annual payments showing reduction of liablity every year.
Prepare a journal entries on the bools of Leese Company for 2020 and 2021.
Prepare a journal entry on December 31,2024, end of lease term, to record the return of the requirement to the lessor. Assume the fair value of the equipment is equal to the guaranteed residual value.
Prepare journal entry on December 31,2024 to record the return of the equipment to the lessor assuming the fair value of the equipment is only P300,000.
Prepare journal entry on December 31,2024 to record the return of the equipment to the lessor assuming the fair value of the equipment is P500,000.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions