Splish Brothers enters into an agreement with Traveler Inc. to lease a car on December 31, 2019.
Question:
Splish Brothers enters into an agreement with Traveler Inc. to lease a car on December 31, 2019. The following information relates to this agreement.
1. | The term of the non-cancelable lease is 3 years with no renewal or bargain purchase option. The remaining economic life of the car is 3 years, and it is expected to have no residual value at the end of the lease term. | |
2. | The fair value of the car was $12,300 at commencement of the lease. | |
3. | Annual payments are required to be made on December 31 at the end of each year of the lease, beginning December 31, 2020. The first payment is to be of an amount of $4,553.25, with each payment increasing by a constant rate of 5% from the previous payment (i.e., the second payment will be $4,780.91 and the third and final payment will be $5,019.96). | |
4. | Splish Brothers’ incremental borrowing rate is 8%. The rate implicit in the lease is unknown. | |
5. | Splish Brothers uses straight-line depreciation for all similar cars. |
Date | Account Titles and Explanation | Debit | Credit | |
---|---|---|---|---|
choose a transaction date 12/31/1912/31/2012/31/21 | enter an account title | enter a debit amount | enter a credit amount | |
enter an account title | enter a debit amount | enter a credit amount | ||
| enter an account title to record interest expense | enter a debit amount | enter a credit amount | |
enter an account title to record interest expense | enter a debit amount | enter a credit amount | ||
enter an account title to record interest expense | enter a debit amount | enter a credit amount | ||
(To record interest expense) | ||||
choose a transaction date 12/31/1912/31/2012/31/21 | enter an account title to record amortization of the right-of-use asset | enter a debit amount | enter a credit amount | |
enter an account title to record amortization of the right-of-use asset | enter a debit amount | enter a credit amount | ||
(To record amortization of the right-of-use asset) | ||||
| enter an account title to record interest expense | enter a debit amount | enter a credit amount | |
enter an account title to record interest expense | enter a debit amount | enter a credit amount | ||
enter an account title to record interest expense | enter a debit amount | enter a credit amount | ||
(To record interest expense) | ||||
choose a transaction date 12/31/1912/31/2012/31/21 | enter an account title to record amortization of the right-of-use asset | enter a debit amount | enter a credit amount | |
enter an account title to record amortization of the right-of-use asset | enter a debit amount | enter a credit amount | ||
(To record amortization of the right-of-use asset) |