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What is the book value of the right-of-use asset

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Q1) On January 2, 2020, Monster Company leased a piece of music equipment from Suga company. The 5-year lease calls for a 10% down payment and equal annual payments at the end of each year. The equipment has an expected useful life of 5 years. Monster's incremental borrowing rate is 10%, and it depreciates similar equipment using the double declining balance method. The selling price of the equipment is P325,000, and the rate implicit in the lease is 8%, which is known to Monster. (Use five decimal places for PV factors).

What is the book value of the Right-of-use asset and what is the balance in the Lease Liability account on December 31, 2020, respectively?

A. P325,000; P219,243

B. P208,000: P248,4911

C. P260,000; P248,491

D. P195,000: P242,643

Q2) BC Company started business in 2020. It sells printers with a three-year warranty. BC estimates its warranty cost as a percentage of peso sales. Based on past experience, it is estimated that 2% will be repaired during the first year of warranty, 4% will be repaired during the second year, and 6% will be repaired during the third year of warranty.

In 2020 and 2021, the company was able to sell 7,500 units and 8,400 units respectively at a selling price of P5,000 per unit. The company incurred actual repair costs of P530,000 and P1,176,000 in 2020 and 2021 respectively.

Assuming that sales and repairs occur evenly throughout the period, how much of the 2020 and 2021 sales are still under warranty on December 31, 2021?

A. P8,790,000

B. P6,450,000

C. P7,834,000

D. P7,620,000

Reference no: EM132931365

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