On December 31, 2019, Lucas Corporation leased a building from FortCompany for seven-year period expiring December 31, 2026. Equalannual payments of P2,000,000 are due on December 31 of each year.beginning with December 31, 2019. The lease is properly classified as afinance lease on Lucas 's books. At inception of the lease, Lucas paidP350,000 as commission to agent and estimated that P400,000 will bepaid to restore the property at the end of lease term. The building has auseful life of 20 years at inception of the lease. Lucas guaranteed aresidual value of P200,000 at the end of lease term. Assuming allpayments are made on time and the rate implicit and effective is at 12%,the amount that should be reported by Lucas Corporation as the leaseliability on its December 31, 2022 financial statement is?How much is the balance of the right-of-use asset as of December 31.2022?O P8,715,380O P6,282.414O P7,803,018O P9.759,803

the amount that should be reported by Lucas Corporation as the lease liability on its December 31, 2022 financial statement is? How much is the balance of the right-of-use asset as of December 31. 2022?

the amount that should be reported by Lucas Corporation as the lease liability on its December 31, 2022 financial statement is? How much is the balance of the right-of-use asset as of December 31. 2022?

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

On December 31, 2019, Lucas Corporation leased a building from Fort
Company for seven-year period expiring December 31, 2026. Equal
annual payments of P2,000,000 are due on December 31 of each year.
beginning with December 31, 2019. The lease is properly classified as a
finance lease on Lucas 's books. At inception of the lease, Lucas paid
P350,000 as commission to agent and estimated that P400,000 will be
paid to restore the property at the end of lease term. The building has a
useful life of 20 years at inception of the lease. Lucas guaranteed a
residual value of P200,000 at the end of lease term. Assuming all
payments are made on time and the rate implicit and effective is at 12%,
the amount that should be reported by Lucas Corporation as the lease
liability on its December 31, 2022 financial statement is?
How much is the balance of the right-of-use asset as of December 31.
2022?
O P8,715,380
O P6,282.414
O P7,803,018
O P9.759,803

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Step 1: Computation of Lease Liability at the commencement of the lease

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Step 2: Computation of ROU Asset at the commencement of the lease

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Step 3: Computation of depreciation per annum on ROU Asset

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Step 4: Computation of Lease Liability as on 31st December 2022

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Step 5: Computaion of ROU Asset as on 31st December 2022

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