Reference no: EM132532489
Question - Mari Company has maintained a policy of acquiring equipment by leasing.
On January 1, 2019, Mari Company entered into a lease agreement for an equipment.
The lease stipulates an annual rental payment of P1,200,000 to be paid every December 31 starting December 31, 2019.
The lease contains neither a transfer of title to the lessee nor a purchase option.
The equipment has residual value of P600,000 at the end of the 5-year lease period but is unguaranteed by the lessee. The economic life of the equipment is 8 years.
The implicit interest rate is 12% after considering the unguaranteed residual value.
The present value of an ordinary annuity of 1 at 12% for 5 periods is 3.60.
Required -
1. Prepare journal entries on the books of Mari Company for 2019 and 2020.
2. Prepare journal entry on December 31, 2023 to record the return of the equipment to the lessor as required by the contract. The fair value of the equipment is P400,000.
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