Problem 1 On January 1,2019, Generous Inc. leased two automobiles for executive use. The lease requires Generous to make five annual payments of P260,000 beginning January 1, 2019. At the end of the lease term, December 31, 2023, generous guarantees that the residual value of the automobiles will total P200,000. The property reverts to the lessor at the end of the lease term. The estimated useful life of the automobiles is 6 years and Generous uses straight-line method of all its assets. Generous' incremental borrowing rate is 10%. The interest rate implicit in the lease, which is known to Generous, Inc., is 9%. 1. At what amount should Generous, Inc. record the right-of-use equipment on January 1, 2019? 2. At what amount should the lease liability be recognized at January 1, 2019, after making the first payment of P260,000 to the lessor? 3. Prepare an amortization table for the five-year term of the lease. 4. Prepare journal entries in the books of Generous, Inc. for the years 2019 and 2020 to record all transactions relating to the lease. 5. Assuming that the residual value of the automobiles amounted to P150,000 at the end of the lease term, prepare the journal entry to record the transfer of the leased automobiles to the lessor