On January 1, 2001 Lessee enters into a 4-year lease of heavy machinery. Annual rental is P200,000 payable at the beginning of each year. Lessee does not know the lessor's implicit interest rate. Lessee's incremental borrowing rate is 14%. Lessee incurs initial direct costs of P50,000 in negotiating the lease. The underlying asset's remaining useful life is 10 years. Lessee uses the straight line method of depreciation.

Requirements:

A. Prepare the amortization table for the lease liability.

B. Provide the journal entries on the following dates: January 1, 2001, December 31, 2001 and January 1, 2002.

C. Compute for the carrying amounts of the right of use asset and lease liability on December 31, 2001.