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 #200,000. The interest rate implicit in the lease is 9%. The present value of an ordinary annuity of 1 for nine Years at 9% is 56
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 #200,000. The interest rate implicit in the lease is 9%. The present value of an ordinary annuity of 1 for nine Years at 9% is 56
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter20: Accounting For Leases
Section: Chapter Questions
Problem 6P: Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a...
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1. What amount should be reported as lease liability on December 31, 2020?
a. ₱ 2,912,000
b. ₱ 4,680,000
c. ₱ 2,800,000
d. ₱ 4,500,000
2. What is the initial recognition of the right of use asset?
a. ₱ 3,000,000
b. ₱ 2,800,000
c. ₱ 4,700,000
d. ₱ 3,112,000
3. What is the carrying value of the right of use asset on December 31, 2021?
a. ₱ 2,520,000
b. ₱ 2,666,667
c. ₱ 2,488,889
d. ₱ 2,750,000
Transcribed Image Text: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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