On January 2, 2019,  Min leased an office space for an annual rental of P600,000 payable every yearend. The lease term is for five years and Min  has the option to extend the lease for another three years. The same annual rent shall be payable if the option is exercised, however, Min did not signify to exercise said option in 2019. The implicit interest rate on the lease is 12%. On January 1, 2021, Min decided to extend the lease when the implicit interest rate is 10%. How much is interest expense for 2021? How much is the depreciation expense for 2021?

1 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 | 2 22 23 24 25 25 27 28 25 30332 38 34 35 35 21 18 19 Date 20 26 29 31 33 36 37 38 (The $18,000 option to purchase does not count as a bargain purchase, the expected residual value at the end of the lease term is also $18,000.) 39 40 (a) Computation of annual payments: 1/1/20 12/31/20 12/31/21 12/31/21 Skysong Leasing Company (Lessor) Lease Amortization Schedule Interest on Lease Receivable Annual Lease Payment Account Titles Recovery of Lease Receivable Debit 1 2 Credit 3 5 6 7 8 9 Lease 10 Receivable 11 189,000 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 |33 34 35 36 37 38 39 40

On January 1, 2019, Ballieu Company leases specialty equipment with an economic life of 8 years to Anderson Company. The lease contains the following terms and provisions: • The lease is noncancelable and has a term of 8 years. • The annual rentals are $31,000, payable at the beginning of each year. • The interest rate implicit in the lease is 12%. • Anderson agrees to pay all executory costs directly to a third party and is given an option to buy the equipment for $1 at the end of the lease term, December 31, 2026. • The cost of the equipment to the lessor is $162,500, and the fair value is approximately $172,500. • Ballieu incurs no material initial direct costs. • It is probable that Ballieu will collect the lease payments. • Ballieu estimates that the fair value is expected to be significantly greater than $1 at the end of the lease term.   Ballieu calculates that the present value on January 1, 2019, of 8 annual payments in advance of $31,000 discounted at…

Sheffield Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $53,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 7%; Sheffield’s incremental borrowing rate is 9%. Sheffield is unaware of the rate being used by the lessor. At the end of the lease, Sheffield has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Sheffield uses the straight-line method of depreciation on similar owned equipment.