Question
Maaa Mits Co. is a company based in Iligan City. It has been the policy of Maaa Mits Co. to acquire equipment by leasing. On
Maaa Mits Co. is a company based in Iligan City. It has been the policy of Maaa Mits Co. to acquire equipment by leasing. On January 2, 2017, Maaa Mits Co. signed a leased contract with Shapi Company for a new delivery truck that had a selling price of Php 1,060,000. The lease contract provides that annual payments of Php 210,000 will be made for 6 years. Maaa Mits Co. made the first lease payment on January 2, 2017, and subsequent payments are made on December 31 of each year. Maaa Mits Co. guarantees a residual value of Php 183,560 at the end of the lease term. After considering the guaranteed residual value, the implicit rate in the lease is determined to be 12%. EL C Corp. has an incremental borrowing rate of 15% as determined from a local bank. A security of Php 150,000 was made by Maaa Mits Co. to Shapi to cover for any damages occurring during the lease term. The economic life of the truck is 9 years. Maaa Mits depreciates its other equipment using the straight-line method and uses the calendar year for financial reporting purposes.
a. What is the cost of the leased delivery truck at the commencement of the lease?
b. What is the balance of the lease liability after the first payment at the commencement of the lease?
c. What is the depreciation expense to be recognized by Maaa Mits Co for the year ended December 31, 2017?
d. What is the balance of the lease liability as of December 31, 2020?
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