On January 1, 2019, Massan Company leased an equipment with remaining useful of 14 years from Delaware Corp. The lease required 10 annual payments of P1,000,000 beginning immediately. The lease specified an interest rate of 12% and a purchase option of P1,000,000 at the end of the tenth year. The lessee is reasonably certain to exercise the purchase option. PV of an annuity due of 1 at 12% for 10 periods is 6.328; PV of 1 at 12% for 10 periods is 0.322 A. Assuming the lessee exercise the purchase option on December 31, 2028, what amount shall be debited as cost of machine?

A. 900,000 B. 1,000,000 C. 1,900,000 D. 2,000,000

B. Assuming the lessee did not exercise the purchase option on December 31, 2028, what amount shall be recognize as loss on finance lease?

A. 0 B. 900,000 C. 1,000,000 D. 1,900,000

Correct answer

A. 900,000

B. 900,000

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