On January 1, 2021, ABC Company sold machinery with carrying amount of P550,000 for P800,000, which is the fair value of the asset on this date, and then immediately leased the machine back for P160,000 annually payable in advance for five years. The implicit rate is 12%.  Using four decimal places as PV factors, which of the following will be part of the compound journal entry ABC Company will prepare on January 1, 2021? A. Debit Cash, P800,000 B. Credit Lease liability, P645,968 C. Credit Gain on Sale-Leaseback, P48,315 D. Debit Right-of-Use Machinery, P444,103

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A:

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A: Formulas:

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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.