Question 1)

At the beginning of current year, an entity leased an equipment from a lessor with the following pertinent information:

Annual rental payable at the end of each year1,000,000

Initial direct cost paid 400,000

Lease bonus paid tolessorbefore commencement of the lease 300,000

Lease incentive received100.000

Discounted amount of restoring building as required by contract 700,000

Leasehold improvement200,000

Purchase option that is reasonably certain to be exercised 500,000

Lease term5 years

Useful life of equipment 8 years

Implicit interest rate 10%

PV of an ordinary annuity of 1 for 5 periods at 10% 3.79

Present value of 1 for 5 periods at 10% 0.62

Solve for the ff:

1. What is the initial lease liability?
2. What is the cost of the right of use asset?
3. What is the interest expense for the current year?
4. What is the lease liability at year-end?
5. What is the depreciation of the right of use asset for current year?

Question 2)

On December 31, 2019, an entity leased two automobiles for executive use. The lease required the entity to make five annual payments of P1,500,000beginningDecember 31, 2019. At the end of the lease term, December 31, 2024, the entity had a residual value guarantee of the automobiles at P1,000,000. The interest rate implicit in the lease is 10% and present value factors at 10% for 5 periods are 4.17 for an annuity due, 3.79 for an ordinary annuity and 0.62 for present value of 1.

Solve for the ff:

1. What is the lease liability on December 31, 2020?
2. What is the current portion of the lease liability on December 31, 2020?
3. What is the interest expense for 2020?