Sassy Company enters into a five-year lease agreement with Corral Company (lessor) over equipment on December 31, 2014. The provisions in the lease are as follows: Island Company will pay P250,000 per...

Sassy Company enters into a five-year lease agreement with Corral Company (lessor) over equipment on December 31, 2014. The provisions in the lease are as follows: Island Company will pay P250,000 per year; has the option to purchase the equipment at the end of the five-year period for P100,000 and if the company does not purchase the equipment, it must return to the lessor. Base on the fair value of the asset of P800,000, the periodic rentals of P250,000, and the unguaranteed residual value of P100,000 and based on these variables, the implicit rate of the lease is 19.34%. What should be the carrying value of the lease liability on December 31, 2017?


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