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1. Lemonade Company provides retirement benefits to employees through defined contribution plan. The plan provides Lemonade shall contribute annually 8% of gross payroll to a funding agency. In addition, the entity is also required to contribute 5% of annual sales exceeding P10,000,000. During 2021, gross payroll of the company was P6,000,000 and the total sales amounted to P35,000,000. Which ofthe following is part of the entries that would be recorded by Lemonade assuming that the company contributed P1,700,000? A. Debit Retirement Benefit Expense, P480,000 B. Credit Cash, P1,730,000 C. Debit Prepaid Retirement Benefit Cost, P30,000 D. Credit Accrued Retirement Benefit Cost, P30,000 2. LIME Company entered into a 10year lease of a commercial space on January 1, 2021. Annual lease payment payable at the beginning of each year amounted to P500,000. The company has paid commissions of P200,000to Lemon, 3 real estate brokerage firm that have helped the company closed the reasonable deal with the lessor. Details found on the signed contract of lease are as follows: 0 Residual value at the end ofthe lease term (20% is not guaranteed)- P250,000 - Purchase option at the end of the lease term- P150,000 0 Annual property taxes (amount to be shouldered by the lessee)- P50,000 o Lessee's share in annual insurance- P30,000 0 Annual budgeted repairs and maintenance expenses P20,000 The cost of dismantling the improvements and fixtures and restoring the commercial space into its original intended use after the end ofthe lease term is estimated to be at P3S0,000. Considering the flooding, fault line and deterioration in the vicinity and the current plan to build a cemetery in front ofthe leased premises, the appraiser estimated that the fair value of the leased commercial space at the end of the lease term is just P125,000. He also estimated the remaining economic life ofthe property to be 12 years. LIME incremental borrowing rate is 8%, which is also the prevailing interest rate in 2020. Based on the unrevealed intelligence gathered by Lemon, the implicit interest rate is 6%. Compute the lease liability and the right of use asset after first payment as ofJanuary 1, 2021 and after determining the most likely decision of the company as to whether it will purchase or return the commercial space at the end of the lease term (round off PV factors at 5 decimal places). A. Lease Liability- P3,761,085; Right of Use Asset- P4,078,205 B. Lease Liability P3,192,925; Right of Use Asset P3,892,925 C. Lease Liability- P3,692,925; Right of Use Asset P4,055,045 D. Lease Liability P3,761,085; Right of Use Asset P4,311,085