On January 2, 20x9, Nori Mining Co. (lessee) entered into a 5-year lease for drilling equipment. Nori recognized a lease liability of P240,000 at the commencement date. This amount includes the P10,000 exercise price of a purchase option. At the end of the lease, Nori expects to exercise the purchase option. Nori estimates that the equipment's fair value will be P20,000 at the end of its 8-year life. Nori regularly uses straight-line depreciation on similar equipment. For the year ended December 31, 20x9, what amount should Nori recognize as depreciation expense on the leased asset? с. 30,000 d. 27,500 а. 48,000 b. 46,000

On January 2, 20x9, Nori Mining Co. (lessee) entered into a 5-year lease for drilling equipment. Nori recognized a lease liability of P240,000 at the commencement date. This amount includes the P10,000 exercise price of a purchase option. At the end of the lease, Nori expects to exercise the purchase option. Nori estimates that the equipment's fair value will be P20,000 at the end of its 8-year life. Nori regularly uses straight-line depreciation on similar equipment. For the year ended December 31, 20x9, what amount should Nori recognize as depreciation expense on the leased asset? с. 30,000 d. 27,500 а. 48,000 b. 46,000

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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Concept explainers

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

Question

100%

On January 2, 20x9, Nori Mining Co. (lessee) entered into a 5-year lease for drilling equipment. Nori
recognized a lease liability of P240,000 at the commencement date. This amount includes the P10,000
exercise price of a purchase option. At the end of the lease, Nori expects to exercise the purchase
option. Nori estimates that the equipment's fair value will be P20,000 at the end of its 8-year life. Nori
regularly uses straight-line depreciation on similar equipment. For the year ended December 31, 20x9,
what amount should Nori recognize as depreciation expense on the leased asset?
c. 30,000
d. 27,500
a. 48,000
b. 46,000

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