On January 1, 2021, Ethan Corporation signed a 5-year non-cancelable lease for a machine with Best Company. The terms of the lease called for Ethan to make annual payments of P150,000 at the beginning of each year starting January 1, 2021. The machine has an estimated useful life of 6 years and a P50,000 unguaranteed residual value at the end of the five-year lease term. The machine reverts to the lessor at the end of the five-year lease term. Ethan uses the straight-line method of depreciation for all of its plant assets. The rate implicit in this contract, which is known to Ethan, is 10%. The fair value of the machine on January 1, 2022 is P650,000. Ethan incurred directly attributable cost of P15,000 to install the machine. Ethan has a constructive obligation to restore the machine to a condition still suitable for use at the end of the lease term. Estimated cost of restoration is P10,000. (Use a discount rate of 10% to measure the provision.) What is the capitalized cost of the right-of-use machine? (Use four decimal places)

On January 1, 2021, Ethan Corporation signed a 5-year non-cancelable lease for a machine with Best Company. The terms of the lease called for Ethan to make annual payments of P150,000 at the beginning of each year starting January 1, 2021. The machine has an estimated useful life of 6 years and a P50,000 unguaranteed residual value at the end of the five-year lease term. The machine reverts to the lessor at the end of the five-year lease term. Ethan uses the straight-line method of depreciation for all of its plant assets. The rate implicit in this contract, which is known to Ethan, is 10%. The fair value of the machine on January 1, 2022 is P650,000. Ethan incurred directly attributable cost of P15,000 to install the machine. Ethan has a constructive obligation to restore the machine to a condition still suitable for use at the end of the lease term. Estimated cost of restoration is P10,000. (Use a discount rate of 10% to measure the provision.) What is the capitalized cost of the right-of-use machine? (Use four decimal places)

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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