Ondoy Company leased an asset to another entity on January 1, 2021. A third party guaranteed the residual value of the asset under the lease, estimated to be P1,200,000 on January 1, 2026, the end of the lease term. The lease is properly classified as a direct financing lease. Annual lease payments are P1,000,000 due each December 31, beginning December 31, 2021. The last payment is due December 31, 2025. Both the lessor and lessee use 10% as the interest rate. The remaining useful life of the asset is 6 years at the commencement of the lease. 1. What is the net liability balance for the lessee on December 31, 2021? 2. What is the net asset balance for the lessor on December 31, 2022?
Ondoy Company leased an asset to another entity on January 1, 2021. A third party guaranteed the residual value of the asset under the lease, estimated to be P1,200,000 on January 1, 2026, the end of the lease term. The lease is properly classified as a direct financing lease. Annual lease payments are P1,000,000 due each December 31, beginning December 31, 2021. The last payment is due December 31, 2025. Both the lessor and lessee use 10% as the interest rate. The remaining useful life of the asset is 6 years at the commencement of the lease. 1. What is the net liability balance for the lessee on December 31, 2021? 2. What is the net asset balance for the lessor on December 31, 2022?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Ondoy Company leased an asset to another entity on January 1, 2021. A third party guaranteed the residual value of the asset under the lease, estimated to be P1,200,000 on January 1, 2026, the end of the lease term. The lease is properly classified as a direct financing lease. Annual lease payments are P1,000,000 due each December 31, beginning December 31, 2021. The last payment is due December 31, 2025. Both the lessor and lessee use 10% as the interest rate. The remaining useful life of the asset is 6 years at the commencement of the lease.
1. What is the net liability balance for the lessee on December 31, 2021?
2. What is the net asset balance for the lessor on December 31, 2022?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education