On December 31, 2019, Ames Company leased equipment for 10 years. The entity contracted to pay P400, 000 annual rent on December 31, 2019, and on December 31 of each of the next years. The leased liability was recorded at P2, 700,000 on December 31,2019, before the first payment. The equipment’s useful life is 12 years, and the interest rate implicit in the lease in 10%. The entity used the straight line method to depreciate all equipment. 1. In recording the December 31, 2020 payment, by what amount should the lease liability be reduced? a. 270,000 b. 230,000 c. 225,000 d. 170,000 2. What amount should be reported as interest expense for 2020? a. 270,000 b. 230,000 c. 200,000 d. 0  3. What is the lease liability on December 31, 2021? a. 2,700,000 b. 2,300,000 c. 2,130,000 d. 1,900,000

SWFT Comprehensive Vol 2020
43rd Edition
ISBN:9780357391723
Author:Maloney
Publisher:Maloney
Chapter14: Property Transact Ions: Capital Gains And Losses, § 1231, And Recapture Provisions
Section: Chapter Questions
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On December 31, 2019, Ames Company leased equipment for 10 years. The entity contracted to pay P400, 000 annual rent on December 31, 2019, and on December 31 of each of the next years. The leased liability was recorded at P2, 700,000 on December 31,2019, before the first payment.
The equipment’s useful life is 12 years, and the interest rate implicit in the lease in 10%. The entity used the straight line method to depreciate all equipment.

1. In recording the December 31, 2020 payment, by what amount should the lease liability be reduced?
a. 270,000
b. 230,000
c. 225,000
d. 170,000

2. What amount should be reported as interest expense for 2020?
a. 270,000
b. 230,000
c. 200,000
d. 0 

3. What is the lease liability on December 31, 2021?
a. 2,700,000
b. 2,300,000
c. 2,130,000
d. 1,900,000
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