On Jan1, 2021, XYZ company rented a high-tech equipment from lessor ABC Co. for 7 years (2021 2027) at 100,000 per year. It spent 10,000 in documentary stamp tax, lawyer's fee of 20,000, local permit fee of 8000, office supplies of 1,500 and estimates that it will spend 25,000 in dismantling and repair costs after the lease ends. XYZ has total use and control of the h-t equipment but ownership reverts to the lessor after the lease term ends in 2027. Prevailing bank interest rate at the inception of the contract is 4%. The ht-equipment has a useful life of 10 years at the inception of the lease. Guaranteed residual value by the lessee is 150,000. Payment is due every Dec 31 of each year. Repairs and maintenance every quarter of each year is 5000.

1) What is the initial lease liability?

2) What is the cost of right of use asset?

3) How much is the depreciation expense for year 2021?

4) How much is the book value of the ROUA at the end of year 2021?

5) How much is the loss/gain of the lessee on the Finance lease if the fair value of the equipment is Ps 300,000 at the end of 2027?

6) How much is the loss/gain of the lessee on the Finance lease if the fair value of the equipment is Ps 95,000 at the end of 2027?

7) How much is the accumulated Operating expenses in year 1?

8) Prepare an amortization schedule. Follow class rounding off protocol/guideline as necessary

9) Prepare the necessary journal entries for 2021