Problem 7-1

Requirement 1: Prepare related journal entries to record the transactions that transpire during the year 2020.
Show necessary computations for the right of use asset, lease liability, interest expense and depreciation.
GENERAL JOURNAL
Date Page Number 01
Decriptions
2020 PR Debit
Mar-01 1. Right of use asset 6,668,150.00
Lease liability
Cash

Present value of lease liability (1,500,000 x 4.3121) 6,468,150.00

Add: Initial Direct costs 200,000.00
Right of use asset 6,668,150.00

Mar-01 2. Lease liability 1,500,000.00

Prepaid Executory Cost (Insurance expense) 100,000.00
Cash

Dec-31 3. Depreciation (6,668,150 x (10/60 months)) 1,111,358.33

Accumulated Depreciation

Dec-31 4. Interest expense 397,452.00

Accrued interest payable

Dec-31 Executory Cost 100,000.00

Prepaid Executory Cost (Insurance expense)

Dec-31 Executory Cost (Tax expense) 41,666.67

Cash

Requirement 2: How much is the carrying amount of the right of use asset on December 31, 2022?

Right of use asset 6,668,150.00

Less: Accumulated Depreciation ((6,668,150/60) x 34 months) 3,778,618.33
Carrying Amount 2,889,531.67

Requirement 3: How much is to be reported as expenses related to the lease contract for December 31, 2020?

Interest expense 397,452.00

Executory Cost (Tax expense) 41,666.67
Executory Cost (Insurance expense) 100,000.00
Depreciation Expense 1,111,358.33
Total ₱ 1,650,477.00
Requirement 4: How much is the carrying amount of the lease liability on December 31, 2021? Determine the
current and non-current portion?

Lease liability - March 1, 2020

Less: First payment on March 1, 2020 -
Balance: Lease Liability - March 1, 2020

Less: Interest expense for 2020 - Dec. 31, 2020 (4,968,150*8%)

Lease liability - December 31, 2020

Less: Second payment on January 1, 2021

Payment 1,500,000.00
Less: Interest expense for 2021 - Dec. 31, 2020 - 365,655.84
Principal payment
Lease liability - December 31, 2021

Lease liability - December 31, 2021

Current portion
Noncurrent portion

Problem 7-2
Requirement 1: How much should be capitalized as the cost of right of use asset?

Present value of rental payment (720,000 x 6.3282) 4,556,304.00

Total cost of right of use asset/ Present value of lease asset ₱ 4,556,304.00

Requirement 2: How much should be included in the current liabilities section of RLC’s Statement of Financial
Position at December 31, 2020?

Current liabilities for RLC's Statement of Financial Position at Dec. 31, 2020
Lease Liability (Current Portion) ₱ 231,973.92

Lease liability - December 31, 2019

Less: First payment on December 31, 2019 720,000.00
Less: Executory costs *deduct on yearly rental payment* - 24,705.00
Lease liability - December 31, 2019

Less: Second payment on December 31, 2020

Payment 720,000.00
Less: Executory costs *deduct on yearly rental payment* - 24,705.00
Interest for 2019 (12% x 3,861,009) - 463,321.08
Principal payment
Lease liability - December 31, 2020
 Lease liability - December 31, 2020
Current portion
Noncurrent portion

Requirement 3: How much should be included in the noncurrent liabilities section of RLC’s statement of financial
position at December 31, 2020?

Noncurrent liabilities for RLC's Statement of Financial Position at Dec. 31, 2020
Lease Liability (Noncurrent Portion) ₱ 3,397,061.16

Requirement 4: How much is the total lease-related expenses to be reported in RLC’s Income Statement for the
year ended December 31, 2020?

Lease-related expenses for RLC's Income Statement at Dec. 31, 2020

Executory costs ₱ 24,705.00
Interest expense 463,321.08
Depreciation expense (4,556,304 / 10) 455,630.40
Total ₱ 943,656.48
e during the year 2020.
e and depreciation.

Number 01
Credit

6,468,150.00
200,000.00

1,600,000.00

1,111,358.33
Year (Payment of interest) Payment 8% interest Principal
March 1, 2020
397,452.00 March 1, 2020 1,500,000.00 1,500,000.00
Dec. 31, 2020 - 397,452.00 -
2021 1,500,000.00 365,655.84 1,134,344.16
100,000.00 2022 1,500,000.00 274,908.31 1,225,091.69
2023 1,500,000.00 176,900.97 1,323,099.03

41,666.67

er 31, 2022?

or December 31, 2020?

1, 2021? Determine the

₱ 6,468,150.00
1,500,000.00
₱ 4,968,150.00

- 397,452.00
4,570,698.00

1,134,344.16
3,436,353.84

₱ 3,436,353.84
1,134,344.16
₱ 2,302,009.68

Statement of Financial

Date Payment Interest Principal

Dec. 31, 2019
Dec. 31, 2019 695,295.00 695,295.00
Dec. 31, 2020 695,295.00 463,321.08 231,973.92
₱ 4,556,304.00 Dec. 31, 2021 695,295.00 435,484.21 259,810.79
Dec. 31, 2022 695,295.00 404,306.91 290,988.09
695,295.00 Dec. 31, 2023 695,295.00 369,388.34 325,906.66
3,861,009.00 Dec. 31, 2024 695,295.00 330,279.55 365,015.45
Dec. 31, 2025 695,295.00 286,477.69 408,817.31
Dec. 31, 2026 695,295.00 237,419.61 457,875.39
Dec. 31, 2027 695,295.00 182,474.57 512,820.43
Dec. 31, 2028 695,295.00 120,936.12 574,358.88
Dec. 31, 2029 695,295.00 52,013.05 643,281.95
231,973.92
3,629,035.08
 ₱ 3,629,035.08
231,973.92
₱ 3,397,061.16

LC’s statement of financial

ncome Statement for the

Present value
6,468,150.00
4,968,150.00
4,570,698.00
3,436,353.84
2,211,262.15
-
Present value
4,556,304.00
3,861,009.00
3,629,035.08
3,369,224.29
3,078,236.20
2,752,329.55
2,387,314.09
1,978,496.79
1,520,621.40
1,007,800.97
433,442.08
-