ASSIGNMENT.

I. Answer the following problems.

1. At the beginning of current year, Lessee Company leased a machinery with the following
information:

Annual rental payable at the end of each year 1,000,000

Residual value guarantee 500,000
Payment to lessor to obtain a long-term lease 300,000
Cost of dismantling and restoring the asset as required
by contract at present value 390,000
Annual executory cost paid by lessee 50,000
Lease term 4 years
Useful life of machinery 8 years
Implicit interest rate 10%
Present value of an ordinary annuity of 1 at 10% for 4 periods 3.17
Present value of 1 at 10% for 4 periods 0.68

a. What is the initial lease liability? __________

b. What is the cost of right use asset? __________
c. What is the depreciation of current year? ___________
d. What is the lease liability at year-end? __________

2. Claude Company leased equipment for the entire nine-year useful life, agreeing to pay P500,000
at the start of the lease term on December 31, 2021, and P500,000 annually on each December
31 for the next eight years.

The present value on December 31, 2021, of the nine lease payments over the lease term using
the rate implicit in the lease which Claude knows to be 10% was P3,165,000.

The December 31, 2021, present value of the lease payments using Claude’s incremental
borrowing rate of 12% was P2,985,000. Claude made a timely second lease payment.

a. What amount should be reported as lease liability on December 31, 2022? __________

3. Ling Company entered a lease of building on January 1, 2021, with the following information:

Annual rental payable at the end of each year 500,000

Lease term 5 years
Useful life of building 20 years
Implicit interest rate 10%
PV of an ordinary annuity of 1 at 10% for 5 periods 3.79

The leas contained an option for the lease to extend for a further 5 years.

At the commencement date, the exercise of the extension option is not reasonably certain.
After 3 years on January 1, 2024, the lease decided to extend the lease for a further 5 years.

New annual rental payable at the end of each year 600,000

New implicit interest rate 8%
PV of an ordinary annuity of 1 at 8% for 5 periods 3.99
PV of 1 at 8% for 2 periods 0.86
PV of an ordinary annuity of 1 at 8% for 2 periods 1.78

a. What amount should be reported as depreciation for 2021? __________

b. What amount should be reported as lease liability on December 31, 2023? __________
c. What amount should be reported as new lease liability on January 1, 2024? __________
d. What is the carrying amount of right of use asset on January 1, 2024? __________
e. What amount should be reported as depreciation for 2024? __________