On January 1, 20xl, FATUITY FOOLISHNESS Co. entered into a 4-year lease agreement with STUPIDITY, Inc. for industrial equipment. Lease payment is P200,000 payable annually starting on January 1, 20x1. FATUITY knows that the lessor expects a 10% return on the lease. FATUITY has a 12% incremental borrowing rate. The equipment is expected to have an estimated useful life of 5 years and a residual value of P50,000. The lease agreement contained a bargain purchase option at PI00,000 exercisable at the end of the lease term. It is reasonably certain as of inception of the lease that FATUITY will exercise the option in the future. FATUITY uses the straight line method of depreciation. Requirement: Provide all the pertinent entries.
On January 1, 20xl, FATUITY FOOLISHNESS Co. entered into a 4-year lease agreement with STUPIDITY, Inc. for industrial equipment. Lease payment is P200,000 payable annually starting on January 1, 20x1. FATUITY knows that the lessor expects a 10% return on the lease. FATUITY has a 12% incremental borrowing rate. The equipment is expected to have an estimated useful life of 5 years and a residual value of P50,000. The lease agreement contained a bargain purchase option at PI00,000 exercisable at the end of the lease term. It is reasonably certain as of inception of the lease that FATUITY will exercise the option in the future. FATUITY uses the straight line method of depreciation. Requirement: Provide all the pertinent entries.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:On January 1, 20xl, FATUITY FOOLISHNESS Co. entered into a 4-year lease agreement with
STUPIDITY, Inc. for industrial equipment. Lease payment is P200,000 payable annually starting on
January 1, 20x1. FATUITY knows that the lessor expects a 10% return on the lease. FATUITY has a 12%
incremental borrowing rate. The equipment is expected to have an estimated useful life of 5 years and a
residual value of P50,000. The lease agreement contained a bargain purchase option at P100,000
exercisable at the end of the lease term. It is reasonably certain as of inception of the lease that FATUITY
will exercise the option in the future. FATUITY uses the straight line method of depreciation.
Requirement: Provide all the pertinent entries.
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