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Prepare journal entries relating to the lease in the books

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Reference no: EM132616190

Eliz Manufacturing Company leases a machine to the Jane Company to a total rental of P2,000,000, payable in 5 annual installments in the following declining pattern: 30% in first year, 20% in each of the next two years, and 15% in each of the last two years. The lease begins on January 1, 2020.

The lease does not qualify as a finance lease for reporting purposes. Hope incurred initial direct costs of P60,000 in obtaining the lease.

The machine cost Eliz P2,200,000 on January 1, 2020 and has an estimated life of 10 years with an estimated residual value of P200,000. Eliz uses the straight-line depreciation method on its equipment. Both companies report on a calendar-year basis.

REQUIRED:

Question (a) Prepare journal entries relating to the lease in the books of both Eliz Manufacturing Company and Jane Company for years 2020 and 2021.

Question (b) Identify the accounts and amounts that will be presented on 2020 financial statements of both Eliz manufacturing Company and Jane Company related to lease.

Reference no: EM132616190

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