On December 31, 2020, Olivia Inc. leased a machinery from Catriona Company. The cost of the machinery on Catriona’s books is P1,345,815. The terms of the lease contain the following: ·         Annual payment payable in advance on December 31 each year: 358,500 ·         Lease term: 4 years ·         Useful life of machinery: 6 years ·         Estimated residual value of machinery: 225,000 ·         Guaranteed residual value upon return: 112,500 INCLUDED in the annual payment is the amount of P28,500 which represents payment of executory costs. First payment is made on commencement date. Implicit interest rate is 7%. On the lessee’s books, how much is the carrying amount of the right of use asset by December 31, 2021?   a. 961,387 b. 1,105,708 c. 1,017,637 d. 989,512

Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter20: Accounting For Leases
Section: Chapter Questions
Problem 10MC: On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring...
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On December 31, 2020, Olivia Inc. leased a machinery from Catriona Company. The cost of the machinery on Catriona’s books is P1,345,815. The terms of the lease contain the following:

·         Annual payment payable in advance on December 31 each year: 358,500

·         Lease term: 4 years

·         Useful life of machinery: 6 years

·         Estimated residual value of machinery: 225,000

·         Guaranteed residual value upon return: 112,500

INCLUDED in the annual payment is the amount of P28,500 which represents payment of executory costs. First payment is made on commencement date. Implicit interest rate is 7%. On the lessee’s books, how much is the carrying amount of the right of use asset by December 31, 2021?
 
a. 961,387
b. 1,105,708
c. 1,017,637
d. 989,512
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