On January 1, 2020, Mixx Company entered into a lease forProblem 10-1 (AICPA Adapted)Lease payments are P800,000 a year for 5 years, payable inThe warehouse has an estimated life of 10 years. The entityOn January 1, 2020, Mixx Company entered into a lenadvance starting January 1, 2020.entityThe warehouse has an estimated life of 10 years. Thepaid initial direct cost of P100,000 on January 1, 2020.The realty taxes of P40,000 a year are to be paid by the entityThe lease provides for neither transfer of title to the lessesupon expiration of the lease term nor a purchase option.The underlying asset is reverted to the lessor at theexpiration of the lease term.The interest rate implicit in the lease is 10%. The relevantpresent value factors are:PV of an ordinary annuity of 1 at 10% for 5 periodsPV of an annuity of 1 in advance at 10% for 5 periods3.794.17Required:1. Prepare journal entries on the books of Mixx Companyfor 2020 and 2021.2. Prepare journal entry upon expiration of the lease onJanuary 1, 2025.

Answered: Required: 1. Prepare journal entries on…

Required: 1. Prepare journal entries on the books of Mixx Company for 2020 and 2021. 2. Prepare journal entry upon expiration of the lease on January 1, 2025.

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

On January 1, 2020, Mixx Company entered into a lease for
Problem 10-1 (AICPA Adapted)
Lease payments are P800,000 a year for 5 years, payable in
The warehouse has an estimated life of 10 years. The entity
On January 1, 2020, Mixx Company entered into a len
advance starting January 1, 2020.
entity
The warehouse has an estimated life of 10 years. The
paid initial direct cost of P100,000 on January 1, 2020.
The realty taxes of P40,000 a year are to be paid by the entity
The lease provides for neither transfer of title to the lesses
upon expiration of the lease term nor a purchase option.
The underlying asset is reverted to the lessor at the
expiration of the lease term.
The interest rate implicit in the lease is 10%. The relevant
present value factors are:
PV of an ordinary annuity of 1 at 10% for 5 periods
PV of an annuity of 1 in advance at 10% for 5 periods
3.79
4.17
Required:
1. Prepare journal entries on the books of Mixx Company
for 2020 and 2021.
2. Prepare journal entry upon expiration of the lease on
January 1, 2025.

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