7 Umbrella Travel enters into an agreement with Destinations Inc. to lease a car on December 31, 2019. The following information relates to this agreement 8 9 10 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 11 2. The fair value of the car was $15,000 at commencement of the lease. 12 3. Annual payments are required to be made on December 31 at the end of each year of the lease, beginning December 31, 2020 13 14 The first payment is to be of an amount of $5,552.82, with each payment increasing by a constant rate of 5% from the previous payment 15 4. Umbrella Travel's incremental borrowing rate is 8%. The rate implicit in the lease is unknown. 16 5. Umbrella Travel uses straight-line depreciation for all similar cars. 17 18 Instructions 19 a. Prepare Umbrella Travel's journal entries for 2019, 2020, and 2021 20 21 Present Value of Rental Payments 22 PV of first payment 23 PV of second payment 24 PV of third payment 25 PV of rental payments 26 27 12/31/2019 28 29 300 31 12/31/2020 32 33 34 35 12/31/2020 36 37 38 39 12/31/2021 40 41 42 43 12/31/2021 $ To record initial lease. To record first lease payment To record amortization To record second lease payment 44 45 To record amortization