Reference no: EM132575855
Question 1. On January 1, 2015, Bella Company acquired a machine by signing a four-year lease. Annual rentals of P1,742,174 are payable at the beginning of each year starting January 1,2015. Bella is given the option to buy the machine for P250,000 at December 31, 2018, when the asset's market price is expected to be P1,250,000. The asset's useful life is 6 years, at the end of which the asset's scrap value is expected to be P80,000. Bella uses straight-line method to depreciate this asset.
With an implicit interest rate of 10%, Bella appropriately recorded the machine and the related liability on January 1, 2015 at P6,245,450
On December 31,2018, the end of the lease term, Bella failed to exercise the purchase option.
How much loss, if any, should Bella recognize as a result of the failure to exercise the purchase option?
a. P 0
b. P 885,150
c. P 1,000,000
d. P 1,885,150
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