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Problem 10-5 (IAA) On January 1, 2020, Lessee Company entered into a lease with Lessor Company for a new equipment. The lease stipulates that annual
Problem 10-5 (IAA) On January 1, 2020, Lessee Company entered into a lease with Lessor Company for a new equipment. The lease stipulates that annual payments of P1,000,000 will made for five years starting December 31, 2020. Lessee Company guaranteed a residual value of P474,060 at the end of the 5-year period. The equipment will revert to the lessor at the lease expiration. be The implicit interest rate for the lease is 16% after considering the guaranteed residual value. The economic life of the equipment is 10 years. The present value factors at 16% for five periods are: Present value of 1 0.4761 Present value of an ordinary annuity of 1 3.2743 Required: 1. Prepare a schedule of the annual payments showing reduction of liability every year. 2. Prepare journal entries on the books of Lessee Company for 2020 and 2021. 3. Prepare journal entry on December 31, 2024, end of lease term, to record the return of the equipment to the lessor. Assume the fair value of the equipment is equal to the guaranteed residual value. 4. Prepare journal entry on December 31, 2024 to record the return of the equipment to the lessor assuming the fair value of the equipment is only P300,000. 5. Prepare journal entry on December 31, 2024 to record the return of the equipment to the lessor assuming the fair value of the equipment is P500,000
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