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Exercise 21-15 Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Marin Company. The following information relates to this agreement.

Exercise 21-15

Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Marin Company. The following information relates to this agreement.

1. The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years.
2. The fair value of the asset at January 1, 2020, is $56,000.
3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $3,000, none of which is guaranteed.
4. The agreement requires equal annual rental payments of $18,479 to the lessor, beginning on January 1, 2020.
5. The lessees incremental borrowing rate is 5%. The lessors implicit rate is 4% and is unknown to the lessee.
6. Marin uses the straight-line depreciation method for all equipment

Prepare an amortization schedule that would be suitable for the lessee for the lease term. (Round answers to 0 decimal places, e.g. 5,265.)

MARIN COMPANY (Lessee) Lease Amortization Schedule

Date

Annual Lease Payment

Interest on Liability

Reduction of Lease Liability

Lease Liability

1/1/20

$52, 839

1/1/20

$18,479

$18,479

$34,360

1/1/21

$18,479

$1,718

$16,761

$17,599

1/1/22

$18,479

$880

$17,599

0

$55,437

$2,598

$52,839

Prepare all of the journal entries for the lessee for 2020 and 2021 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessees annual accounting period ends on December 31. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,265. Record journal entries in the order presented in the problem.)

Date Account Titles and Explanation Debit Credit
1/1/20 Right-of-Use Asset 52,839
Lease Liability 52,839
(To record the lease)
1/1/20 Lease Liability 18,479
Cash 18,479
(To record lease payment)
12/31/20 Interest Expense 1,718
Lease Liability 1,718
(To record interest expense)
12/31/20 Amortization Expense 10,568
Right-of-Use Asset 10,568
(To record amortization of the right-to-use asset)
1/1/21 Interest Payable
Interest Expense
(To reverse interest expense)
1/1/21 Lease Liability
Interest Expense
Cash
(to record lease payment)
12/31/21 Interest Expense
Lease Liability
(To record interest expense)
12/31/21 Amortization Expense
Right-of-Use Asset
(To record amortization of the right-to-use asset)

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