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On January, 2019, Diana Corporation signed a 5-year non-cancelable...

On January, 2019, Diana Corporation signed a 5-year non-cancelable lease for a machine with Calpol Company. The term of the lease called for Diana to make annual payments of P86,680 at the beginning of each year starting January 1, 2019. The machine has an estimated useful life of 6 years and a P50,000 unguaranteed residual value at the end of the five-year lease term. The machine reverts to the lessor at the end of the five-year lease term. Diana uses the straight-line method of depreciation for all of its plant assets. The rate implicit in the contract, which is known to Diana is 10%. The fair value of the machine on January 1, 2019 is P392,490. Diana incurred directly attributable cost of P10,000 to install the machine. Diana has suitable for use at the end of the lease term. Estimated cost of restoration is P20,000. (Use a discount rate of 10% to measure the provision) Expert Answer


REQUIRED:

a) At what amount should Diana record the leased asset at January 1, 2019?

b) Amortization table over the 5-year lease term

c) Entries in the books of Diana for the years 2020 and 2021, including December 31 adjustments.

Answer & Explanation
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