Problem 3: ABC Co. leased a new machine from XXX Inc. on January 1, 20X1, under a lease with the following information: Lease term 10 years Annual rent payable at the end of each year P 80,000 Useful life of the machine 12 years Implicit interest rate 14% Lessee’s incremental borrowing rate 12% The annual rental payment includes P 6,000 to cover maintenance costs. The maintenance costs transfer services to ABC. The amount charged reflects the stand alone selling price of the maintenance services. Requirements: Provide the entries in 20X1 and 20X2. Determine the current and non-current portions of the lease liability on December 31, 20X1
Problem 3: ABC Co. leased a new machine from XXX Inc. on January 1, 20X1, under a lease with the following information: Lease term 10 years Annual rent payable at the end of each year P 80,000 Useful life of the machine 12 years Implicit interest rate 14% Lessee’s incremental borrowing rate 12% The annual rental payment includes P 6,000 to cover maintenance costs. The maintenance costs transfer services to ABC. The amount charged reflects the stand alone selling price of the maintenance services. Requirements: Provide the entries in 20X1 and 20X2. Determine the current and non-current portions of the lease liability on December 31, 20X1
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Problem 3:
ABC Co. leased a new machine from XXX Inc. on January 1, 20X1, under a lease with the following information:
|
Lease term |
10 years |
|
Annual rent payable at the end of each year |
P 80,000 |
|
Useful life of the machine |
12 years |
|
Implicit interest rate |
14% |
|
Lessee’s incremental borrowing rate |
12% |
The annual rental payment includes P 6,000 to cover maintenance costs. The maintenance costs transfer services to ABC. The amount charged reflects the stand alone selling price of the maintenance services.
Requirements:
- Provide the entries in 20X1 and 20X2.
- Determine the current and non-current portions of the lease liability on December 31, 20X1.
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