Pisa, Inc. leased equipment from Tower Company under a four-year lease requiring equal annual payments of P86,038, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4-year useful life and no salvage value. Pisa, Inc.’s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Pisa, Inc.) is 8%. 1. What is the amount of principal reduction recorded when the second lease payment is made in Year 2? 2. What is the amount of depreciation expense recorded by Pisa, Inc. in the first year of the asset’s life?
Pisa, Inc. leased equipment from Tower Company under a four-year lease requiring equal annual payments of P86,038, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4-year useful life and no salvage value. Pisa, Inc.’s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Pisa, Inc.) is 8%. 1. What is the amount of principal reduction recorded when the second lease payment is made in Year 2? 2. What is the amount of depreciation expense recorded by Pisa, Inc. in the first year of the asset’s life?
Chapter2: Income Tax Concepts
Section: Chapter Questions
Problem 51P
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Pisa, Inc. leased equipment from Tower Company under a four-year lease requiring equal annual payments of P86,038, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4-year useful life and no salvage value. Pisa, Inc.’s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Pisa, Inc.) is 8%.
1. What is the amount of principal reduction recorded when the second lease payment is made in Year 2?
2. What is the amount of depreciation expense recorded by Pisa, Inc. in the first year of the asset’s life?
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