Reference no: EM132946336

Questions -

Q1) On April 1, 2021, Blue Company acquired a machine by signing a four-year lease. Annual rentals of P1,742,174 are payable at the beginning of each lease year starting April 1, 2021. Blue is given the option to buy the machine for P250,000 on April 1, 2025, when the asset's market price is expected to be P1,250,000. The asset's useful life is 6 years, at the end of which the asset's scrap value is expected to be P600,000. Blue uses the straight-line method to depreciate this asset.

With an implicit interest rate of 10%, Blue appropriately recorded the machine and the related liability on April 1, 2021 at P6,245,450. Blue Company follows the calendar year as its accounting period.

How much is the depreciation expense recognized by Blue for the years ended December 31, 2022 and December 31, 2021?

Q2) On October 1, 2021, Yellow Company leased from Purple Company a set of furniture, which Brown will use for a period of 12 months. On this date, Brown paid the annual rental of P36,000 plus P3,000 incentive to Purple as an inducement to grant the rental for a considerably short period of time. Brown reports on a calendar-year basis.

How much is the rent expense reported in Yellow Company's profit or loss for the year ended December 31, 2021?