Reference no: EM132816443

Question - On January 1, 2019, Taylor Company leased a machine with remaining useful of 14 years from Swift Leasing Corporation. The lease required 10 annual payments of P1,000,000 beginning immediately. The lease specified an interest rate of 12% and a purchase option of P1,000,000 at the end of the tenth year. The lessee is reasonably certain to exercise the purchase option. PV of an annuity due of 1 at 12% for 10 periods is 6.328; PV of 1 at 12% for 10 periods is 0.322.

1. What amount should be recorded initially as cost of the right of use asset? A. 5,650,000 B. 6,328,000 C. 6,650,000 D. 7,328,000

2. What is the annual depreciation of the right of use asset? A. 452,000 B. 475,000 C. 632,800 D. 665,000

3. What total amount in relation to the lease shall be included in the income statement for the year ended 2019? A. 1,153,000 B. 1,273,000 C. 1,343,000 D. 1,463,000

4. Assuming the lessee exercise the purchase option on December 31, 2028, what amount shall be debited as cost of machine? A. 900,000 B. 1,000,000 C. 1,900,000 D. 2,000,000

5. Assuming the lessee did not exercise the purchase option on December 31, 2028, what amount shall be recognize as loss on finance lease? A. 0 B. 900,000 C. 1,000,000 D. 1,900,000

6. At the beginning of the year 2019, Transient Company entered into a 10-year lease for an equipment. The company accounted for the acquisition at the present value of lease payment of P4,900,000 which included a P200,000 residual value guarantee. At the end of the lease, the asset will revert back to the lessor. It is estimated that the asset's fair value at the end of the 12-year useful life will be P100,000. The company regularly used the straight line depreciation on similar equipment. What amount should be recognized as depreciation expense of the right of use asset for 2019? A. 400,000 B. 470,000 C. 480,000 D. 490,000

7. Joker Company recorded the cost of right of use asset at P9,000,000. The underlying asset had a useful life of 8 years and the lease term is 5 years. the asset is expected to have a fair value of P3,000,000 at the end of 5 years and a fair value of P1,000,000 at the end of 8 years. the lease agreement provided for the transfer of title of the underlying asset to the lessee at the end of the lease. What amount of depreciation expense should be recorded for the first year of the lease? A. 1,000,000 B. 1,200,000 C. 1,600,000 D. 1,800,000