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Question - On January 1, 2020, Diana Corporation signed a 5-year non-cancelable lease for a machine with Calpol Company. The terms of the lease called for Diana to make annual payments of P 86,680 at the beginning of each year starting January 1, 2020. The machine has an estimated useful life of 6 years and a P 50,000 unguaranteed residual value at the end of the 5-year lease term. Diana uses the straight-line method of depreciation for all of its plant assets. The rate implicit in this contract, which is known to Diana, is 10%. The fair value of the machine on January 1, 2020, is P 392,490. Diana incurred a directly attributable cost of P 10,000 to install the machine. Diana has a constructive obligation to restore the machine to a condition suitable for use at the end of the lease term. The estimated cost of restoration is P 20,000. (Use a discount rate of 10% to measure the provision)
REQUIRED -
a) At what amount should Diana record the leased asset on January 1, 2020?
b) Prepare the amortization table for the five-year term of the lease.
c) Prepare the journal entries in the books of Diana for the years 2020 and 2021, including December 31 adjustments.
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