Answered step by step
Verified Expert Solution
Question
1 Approved Answer
3. On January 1, 2015, Balallo Company entered into a 6-year lease with a lessor. Annual lease payments of P1,500,000 including annual executory cost of
3. On January 1, 2015, Balallo Company entered into a 6-year lease with a lessor. Annual lease payments of P1,500,000 including annual executory cost of P300,000 are payable at the end of each year. The entity knows that the lessor expects a 10% return on the lease. The entity has a 12% incremental borrowing rate. The equipment is expected to have an estimated useful life of 6 years. In addition, a third party has guaranteed to pay the lessor a residual value of P500,000 at the end of the lease. The present value of an ordinary annuity of 1 for 6 years at 10% is 4.35 and at 12% is 4.11. The present value of 1 at 10% for 6 periods is 0.56 and at 12% for 6 periods is 0.51. on December 31, 2015, what is the principal amount of the lease obligation? a. 5,220,000 c. 4,323,840 b. 4,542,000 d. 4,850,000
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started