On January 1, 2020, Paulina Co. leased an equipment from Gabriela Inc. for a period of 5 years. Equipment has a useful life of 8 years. The annual rental of P2,000,000 is payable at the end of each year. Paulina paid P200,000 of costs directly attributable to the lease contract. Paulina also received a P300,000 lease incentive from Gabriela on commencement date. It is reasonably certain that Paulina will exercise a P500,000 purchase option at the end of the lease term. Implicit rate of the lease is 10%. What amount of depreciation and interest expense, respectively, shall Paulina recognize in 2020 income statement?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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On January 1, 2020, Paulina Co. leased an equipment from Gabriela Inc. for a period of 5 years. Equipment has a useful life of 8 years. The annual rental of P2,000,000 is payable at the end of each year. Paulina paid P200,000 of costs directly attributable to the lease contract. Paulina also received a P300,000 lease incentive from Gabriela on commencement date. It is reasonably certain that Paulina will exercise a P500,000 purchase option at the end of the lease term. Implicit rate of the lease is 10%. What amount of depreciation and interest expense, respectively, shall Paulina recognize in 2020 income statement?
 
a. 1,068,773 ; 589,203
b. 974,004 ; 789,203
c. 1,558,406 ; 789,203
d. 935,196 ; 758,157
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