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How much is the amount to be capitalized as machinery

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Reference no: EM132805610

On December 31, 2018. Tito Co. signed a 4 year noncancelable lease for a new machine requiring P 120, 000 annual payments beginning December 31,2018. The machine has a useful life of 8 years, with no salvage value. The rate implicit on the lease is 12%.

  • Tito has a bargain purchase option amounting to P20, 000. It is certain that the company will exercise this option.
  • The fair value of the machine at the inception of the lease amounted P447,794.

Problem 1: How much is the amount to be capitalized as machinery (leases asset) on December 31, 2018?

a. 420,926
b. 474,660
c. 480,000
d. 500,000

Problem 2: How much is the interest expense in 2019?

a. Nil
b. 36,111
c. 57,600
d. 60,000

Reference no: EM132805610

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