Problem 10-27 (AICPA Adapted) On December 31, 2020, Ames Company leased equipment for 10 years. The entity contracted to pay P 400, 000 annual rent on December 31, 2020 and on December 31 of each of the next time years. The lease liability was recorded at P 2, 700, 000 on December 31, 2020 before the first payment. The equipment’s useful life is 12 years and the interest rate implicit in the lease is 10%. The entity used the straight line method to depreciate all equipment. 1. In recording the December 31, 2021 payment by what amount should the lease liability be reduced? a. 270, 000 b. 230, 000 c. 225, 000 d. 170, 000 2. What is the interest expense for 2021? a. 270, 000 b. 230, 000 c. 200, 000 d. 0 3. What is the lease liability on December 31, 2021? a. 2, 700, 000 b. 2, 300, 000 c. 2, 130, 000
Problem 10-27 (AICPA Adapted)
On December 31, 2020, Ames Company leased equipment for 10 years. The
entity contracted to pay P 400, 000 annual rent on December 31, 2020 and
on December 31 of each of the next time years.
The lease liability was recorded at P 2, 700, 000 on December 31, 2020
before the first payment.
The equipment’s useful life is 12 years and the interest rate implicit in the
lease is 10%.
The entity used the
1. In recording the December 31, 2021 payment by what amount should
the lease liability be reduced?
a. 270, 000
b. 230, 000
c. 225, 000
d. 170, 000
2. What is the interest expense for 2021?
a. 270, 000
b. 230, 000
c. 200, 000
d. 0
3. What is the lease liability on December 31, 2021?
a. 2, 700, 000
b. 2, 300, 000
c. 2, 130, 000
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