On December 31, 2023, Lessee Company signed a four-year noncancelable lease for the right of use of a new machine, requiring P150,000 annual payments beginning December 31, 2023.

The machine has a useful life of 10 years with no salvage value. The rate implicit on the lease is 12%. Lessee Company has a bargain purchase option amounting to P30,000 and it is reasonably certain that the company will exercise this option.

Requirements: 

(a) Provide the journal entries from first year to last year of lease. 

(b) Assuming the purchase option is not exercised, provide the journal entry for non-exercise. 

(c) What is the carrying amount of the right-of-use asset as of the end of 2023, 2024, 2025, and 20262 

(d) Determine the current and non-current portion of the lease liability as of the end of 2023, 2024, 2025, and 2026.

Answer rating: 100% (QA)

a Year 1 2023 Dr Lease Liability 150000 Cr Right of Use Asset 150000 Year 2 2024 Dr Lease Liability ... View the full answer