1. On January 1, 2020, XYZ lease an equipment from a lessor with the following pertinent information:

Annual rental payable at the end of each year 500,000

Lease term 8 years

Useful life 10 years

Implicit rate 10%

PV of an ordinary annuity of 1 for 8 periods at 10% 5.33

PV of 1 for 8 periods at 10% 0.47

The entity has the option to purchase the equipment on January 1, 2027 by paying P500,000

There is reasonable certainty that the entity shall exercise the option. On January 1, 2020, the entity incurred initial direct cost of P200,000.

REQUIRED

1. What is the initial cost of right of use asset? a. 3,100,000 b.0 c.2,900,000 d.2,865,000
2. What is the interest expense for 2019? a. 310,000 b.316,500 c.266,500 d.290,000
3. What is the lease liability on december 31 2019? a. 2,848,500 b.2,690,000 c.2,790,000 d.2,398,500
4. What is the depreciation expense for 2019? a.290,000 b.362,500 c.310,000 d.387,500