Reference no: EM132803858
On January 1, 2019, Nigeria Company entered into a 10-year lease agreement with Falls Company for an office equipment. Annual lease payments of P500,000 are payable at the end of each year. The lessor expected a 10% return on the lease which is the implicit rate in the lease. The equipment is expected to have an estimated useful life of 10 years. In addition, a third party has guaranteed to pay Falls Company a residual value of P250,000 at the end of the lease term. PV of an ordinary annuity of 1 at 10% for 10 periods is 6.14 and the PV of 1 at 10% for 10 periods is 0.39.
Problem 1. What is the initial measurement of lease liability on January 1, 2019?
A. 3,070,000
B. 3,167,000
C. 5,000,000
D. 5,250,000
Problem 2. What is the interest expense for 2019?
A. 307,000
B. 316,700
C. 500,000
D. 525,000
Problem 3. What amount shall be reported as lease liability on December 31, 2020?
A. 2,664,700
B. 2,782,675
C. 2,877,000
D. 2,984,250
Problem 4. At the end of 2021, Reality Company purchased an equipment that it had been leasing under a finance agreement. The right of use asset and lease liability were original recorded at P4,000,000. At the time of purchase, the accumulated depreciation on the right of use asset was P1,600,000 and the remaining balance of the lease liability was P2,600,000. The underlying asset was purchased for P2,880,000 cash. What amount shall be debited as cost of the machinery?
A. 2,400,000
B. 2,680,000
C. 2,880,000
D. 4,000,000
Problem 5. Tesseract Company leased an equipment for six years from a leasing company on January 1, 2018. The company recorded the right of use asset at P4,800,000 which included a purchase option of P100,000. The equipment had an eight-year useful life and a fair value of P300,000 at the end of its useful life. On January 1, 2024, the company did not exercise the purchase option. What is the loss on finance lease to be recognized in 2024?
A. 0
B. 200,000
C. 1,325,000
D. 1,425,000
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