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Prepare the journal entries related to the lease contract

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Question - Neon Inc. leases a new crane to Arcadian Construction under a 5-year non-cancelable contract starting January 1, 2019. Terms of the lease require payments of P50,000 each January 1, starting January 1, 2019. Neon will pay insurance, taxes, and maintenance charges on the crane, which has an estimated life of 12 years, a fair value of P240,000, and a cost to Neon of P240,000. Both Neon and Arcadian adjust and close books annually at December 31. Arcadian's incremental borrowing rate is 9%, and Neon's implicit interest rate of 2% that is not known to Arcadian. Assume straightline depreciation and residual value P15,000.

Required - Prepare the journal entries related to the lease contract and leased asset for the year 2019 for the lessee and lessor.

Reference no: EM133129847

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