1. What amount should be reported as lease liability on December 31,2020? 2. What is the initial recognition of the right of use asset? TWO Corporation entered into a nine-year lease on a warehouse on December 31, 2020. Theestimated useful life of the warehouse on the date of the agreement is 12 years. The lease isnon-renewable, and the warehouse reverts to the lessor at the end of the lease term.Lease payment of P500,000 is due annually starting December 31, 2021, and every December 31thereafter. The cost of restoring the underlying asset to its original condition as required by thecontract is estimated at the present value of P200,000.The interest rate implicit in the lease is 9%. The present value of an ordinary annuity of 1 for nineyears at 9% is 5.6.

1. Lease payment = P 500,000 Lease term = 9 years Interest rate = 9%

Answered: ted as lease liability on

Business

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ted as lease liability on

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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Question

1. What amount should be reported as lease liability on December 31,2020?

2. What is the initial recognition of the right of use asset?

TWO Corporation entered into a nine-year lease on a warehouse on December 31, 2020. The
estimated useful life of the warehouse on the date of the agreement is 12 years. The lease is
non-renewable, and the warehouse reverts to the lessor at the end of the lease term.
Lease payment of P500,000 is due annually starting December 31, 2021, and every December 31
thereafter. The cost of restoring the underlying asset to its original condition as required by the
contract is estimated at the present value of P200,000.
The interest rate implicit in the lease is 9%. The present value of an ordinary annuity of 1 for nine
years at 9% is 5.6.

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