Answered: Neal Company entered into a nine-year…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 10MC: On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring...

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Neal Company entered into a nine-year lease on a warehouse on Dec. 31, 2019.

Lease payments of 520,000 which included executory cost of 20,000 is due annually, beginning on Dec. 31, 2020 and every Dec. 31 thereafter.

The cost of restoring the underlying asset to its original condition as required by the contract is estimated at the present value of 200,000.

The interest rate implicit in the lease is 9%. The PV of an ordinary annuity of 1 for nine years at 9% is 5.60.

1. What amount should be reported as lease liability on December 31,2020?

a. ₱ 4,500,000

b. ₱ 2,912,000

c. ₱ 4,680,000

d. ₱ 2,800,000

2. What is the initial recognition of the right of use asset?

a. ₱ 3,112,000

b. ₱ 2,800,000

c. ₱ 3,000,000

d. ₱ 4,700,000

3. What is the carrying value of the right of use asset on December 31, 2021?

a. ₱ 2,520,000

b. ₱ 2,488,889

c. ₱ 2,750,000

d. ₱ 2,666,667

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