In your audit of Entity A, you noted that the Rent expense account has an ending balance of $1,100,000 at December 31, 2021. $100,000 of this pertains to the maintenance costs paid by the Lessor on behalf of Entity A, which was later by Entity A.

The lease commenced on January 1, 2021. The following are the terms of agreement.

Terms of the Lease Agreement
Lease term			8 years
Useful life			10 years
Annual rental payments due at the end of the year			$1,000,000
Residual value at the end of useful life			$500,000
Bargain purchase option			200,000
Maintenance costs reimbursed to lessor			100,000
Implicit rate			8%

Note: There is reasonable certainty that the purchase option will be exercised by Entity A at the end of the lease term

Required:

1. Compute for the (a) initial lease liability and the cost of the right-of-use asset, (b) Depreciable amount to be used and depreciation expense (c) Carrying amount of the lease liability and the right-of-use asset at the end of the year. 2. Show adjusting entries to correct the "Rent expense" account and to recognize the lease-related items.

Case Scenarios:

1. How will the computations in #1 change assuming that instead of the purchase option, there is a Residual Value Guarantee of $200,000 at the end of the lease term? 2. Assume that Entity A classified the right-of-use asset as Investment Property measured at fair value, what will be the initial and subsequent measurement of the asset?