On January 1, 2020, Tsaritza Co. (lessee) entered into a contract of lease with Snezhnaya Co. (lessor) that allows Tsaritza the right to use machinery for 5 years. The machinery had a useful life of 4 years.
On January 1, 2020, Tsaritza Co. (lessee) entered into a contract of lease with Snezhnaya Co. (lessor)
that allows Tsaritza the right to use machinery for 5 years. The machinery had a useful life of 4 years.
The following terms were agreed on January 1, 2020:
• P500,000 annual rental every December 31 of the year starting 2020 for 5 payments in total.
• Implicit rate of of the lease was 10%.
• Tsaritza’s incremental borrowing rate on agreement date was 12%.
• Tsaritza will guaranteed that at the expiration of the lease term the residual value of the asset
will be at P300,000.
• Initial direct cost paid by Tsaritza were P200,000.
• Lease incentives amounted to P50,000.
On December 31, 2024, the machinery had a fair value of P200,000, Tsaritza Co returned the leased
asset and settled with Snezhnaya Co. (use 4 decimal places for PV factors)
Requirements: (round off any peso value to the nearest one peso to eliminate centavos, if any)
a. What amount of lease liability will be recorded by Tsaritza on January 1, 2020? (Round off
present value factors to four decimal places, round off all peso values to the nearest one peso).
b. What is the carrying amount of the right-of-use asset on December 31, 2020?
c. What is the balance of the lease liability on December 31, 2020?
d. What amount of interest expense will be recorded on December 31, 2020?
e. What amount of
f. Prepare an amortization table for the lease liability.
g. Prepare the
h. Prepare the journal entries in the books of Tsaritza for the year 2024.
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