On December 31, 2020, The King Co. signs a 10-year noncancellable lease agreement to lease a storage building from Corea Company.

The following information pertains to this lease agreement:

a. The agreement requires equal annual rental payments of P720,000 beginning on December 31, 2020.

b. The fair value of the building on December 31, 2020 is P4,400,000.

c. The building has an estimated economic life of 12 years, with an unguaranteed residual value of P100,000. The King Co. depreciates similar buildings on the straight-line method.

d. The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor.

e. The interest rate implicit in the lease is 12% per year.

f. The yearly rental payment includes P24,705 of executory costs related to taxes on the property.

The following present value factors are for 10 periods at 12% annual interest rate:

Present value of an annuity due of 1 6.32825

Present value of an ordinary annuity of 1 5.65022

Present value of 1 0.32197

1. What amount should be capitalized as the cost of the right of use asset? _____________________

2. What amount should be included in the current liabilities section of The King's balance sheet at December 31, 2020? ______________

3. What amount should be included in the noncurrent liabilities section of The King's balance sheet at December 31, 2020? _____________

4. What is the depreciation expense to be reported in The King's income statement for the year ended December 31, 2020? _______________