White Company leased a building on Jan. 1 with the following information P 1,000,000 Fixed annual payment at the end of each year Initial direct costs paid 350,000 150,000 Lease bonus paid before commencement of lease Lease incentives received 100,000 Discounted amount of restoring the building as required by the contract 200,000 Lease term 5 years Useful life of building 8 years Implicit interest rate 8% Incremental borrowing rate 10% PV of an ordinary annuity of 1 for 5 periods at 8% 3.99 10% 3.79 PV of an annuity due of 1 for 5 periods at 8% 4.31 10% 4.17 PV of 1 for 5 periods at 8% 0.68 10% 0.62 The expected fair value at the end of the building's useful life is P 400,000. The straight-line depreciation is used
White Company leased a building on Jan. 1 with the following information P 1,000,000 Fixed annual payment at the end of each year Initial direct costs paid 350,000 150,000 Lease bonus paid before commencement of lease Lease incentives received 100,000 Discounted amount of restoring the building as required by the contract 200,000 Lease term 5 years Useful life of building 8 years Implicit interest rate 8% Incremental borrowing rate 10% PV of an ordinary annuity of 1 for 5 periods at 8% 3.99 10% 3.79 PV of an annuity due of 1 for 5 periods at 8% 4.31 10% 4.17 PV of 1 for 5 periods at 8% 0.68 10% 0.62 The expected fair value at the end of the building's useful life is P 400,000. The straight-line depreciation is used
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter7: Operating Assets
Section: Chapter Questions
Problem 64E
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Determine the (a) initial lease liability and (b) initial cost of the right-of-use asset, if the first lease payment was made at the start of the lease and at the beginning of each year for the next four years and there was no transfer of title nor purchase option
a. (a) P 4,126,000 and (b) P 4,726,000
b. (a) P 4,726,000 and (b) P 4,126,000
c. (a) P 4,310,000 and (b) P 4,910,000
d. (a) P 4,910,000 and (b) P 4,310,000
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