TOPIC: ACCOUNTING FOR LEASE

Problem 7

On December 31,2020, an entity leased two automobiles for executive use. The lease required the entity to make five annual payment of P1,500,000 beginning December 31, 20202. At the end of the lease term, December 21, 2025, the entity had a residual value guarantee of the automobile at P1,000,000. The interest rate implicit in the lease is 10% and present value factors at 10% for periods are 4.17 for an annuity due, 3.79 for an ordinary annuity and 0.62 for present value of 1.

Q1.What is the lease liability on December 31,2021?

A.4,412,500

B.5,375,000

C.6,062,500

D.4.805,000

Q2. What is the current position of the lease liability on December 31, 2021?

A.1,500,000

B.1,058,250

C.962,500

D.750,000

Q3. What is the interest expense for 2021?

A.480,500

B.537,500

C.441,250

D.606,250

Please show me the solution or explain it how did you get the answer for me to understand it more. Thank you.