On January 1, 20x1, Lessee enters into a 5-year lease of equipment. Annual rental is P300, 000 payable at the end of each year. The implicit interest rate in the lease is 9%. The contract provides for a purchase option with an exercise price of P500, 000. Lessee is reasonably certain to exercise the purchase option at the end of the lease term. The remaining useful life of the underlying asset is 8 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, 20x1, December 31, 20x1.