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What is the minimum annual lease payment

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Question - On January 1, 2019, Mess Company entered to a ten-year non-cancelable lease agreement to lease a building from Keep Company. The agreement required equal annual payments at the end of each year. The fair value of the building at the beginning of the lease is P3,949,500, while the carrying amount to Keep Company is P3,458,000. The building has estimated useful life of 10 years. The title of the building will be transferred to Mess at the end of the lease. The incremental borrowing rate of Mess Company is 12%. Keep Company set the annual rental to insure 10% rate of return. The implicit rate of the lessor is known by the lessee. The annual lease payment includes P35,000 executory costs.

1. What is the minimum annual lease payment?

a. 642,718 b. 500,000 c. 562,734 d. 480,000

2. What is the total annual lease payment?

a. 515,000 b. 535,000 c. 597,734 d. 677,718

Reference no: EM132968148

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