Hindrance Company leased equipment for the entire nine-year useful life, agreeing to pay P1,000,000 at the start of the lease term on
December 31, 2018 and P1,000,000 annually on each December 31 for the next eight years. The rate implicit in the lease which is known
to Hindrance is 10%. Hindrance’s incremental borrowing rate is 12%. The PV factors are as follows:
PV of an ordinary annuity of 1 at 10% for 9 periods 5.76
PV of an ordinary annuity of 1 at 12% for 9 periods 5.33
PV of an annuity due of 1 at 10% for 9 periods 6.33
PV of an annuity due of 1 at 12% for 9 periods 5.97
PV of 1 at 10% for 9 periods 0.42
PV of 1 at 12% for 9 periods 0.36

7. What amount shall be included in the current liabilities in relation to the lease on December 31, 2018?
A. 467,000 

B. 533,000 

C. 1,000,000 

D. 4,863,000

8. What amount shall be reported as lease liability on December 31, 2019?
A. 4,863,000 

B. 5,330,000 

C. 5,963,000 

D. 6,330,000

9. What is the interest expense for 2020?

A. 486,300 

B. 533,000 

C. 596,300 

D. 633,000

10. What amount shall be included in the non-current liabilities in relation to the lease on December 31, 2020?
A. 3,784,230 

B. 4,349,300 

C. 5,000,000

 D. 6,000,000

Answer rating: 100% (QA)

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