ARMENIA Company acquired a machine by signing a five-year lease on January 1, 2022. Annual rentals of P500,000 are payable at the beginning of each lease year starting January 1, 2022. The machine is expected to have an unguaranteed residual value of P600,000 at the end of the lease term. The machine’s useful life is 6 years, at the end of which the machine’s residual value is expected to be P300,000. ARMENIA uses a straight-line method to depreciate this asset. The lessor’s implicit interest rate is 10%, which is known to ARMENIA. The company appropriately recorded the machine and the related liability on January 1, 2022. The company follows the calendar year as its accounting period. 

How much is the Right of Use Asset at January 1, 2022?

How much is the Lease Liability at December 31, 2022?

How much is the Carrying Value of the Right of Use Asset at December 31, 2022?

Answer rating: 100% (QA)

To determine the values of the Right of Use Asset and Lease Liability we need to consider the lease payments implicit interest rate and the terms of t... View the full answer