Reference no: EM133088027
Question - JKJ INC. leased a machine from THV LTD. on January 01, 2019. The first annual payment was made on January 01, 2020. The machine has an economic life of six years. The lease agreement requires four annual payments of P33,000, including P3,000 annual payment for repairs and maintenance. At the end of the lease term, the machine will be returned to THV LTD. A residual value in the amount of P5,000 has been guaranteed by JKJ INC. Interest implicit in the lease is 10% which is known to JKJ INC. For the year ended December 31, 2020, what would JKJ INC. record in relation to the lease?
a. An interest expense of P9,851.
b. An interest expense of P0.
c. An interest payable of P9,851.
d. An interest payable of P7,836.
How much annual depreciation expense should JKJ INC. record?
a. P24,628
b. P16,419
c. P23,378
d. P15,585
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