Problem 21-03 (Part Level Submission) Martinez Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $51,025 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 6%; Martinez's incremental borrowing rate is 8%. Martinez is unaware of the rate being used by the lessor. At the end of the lease, Martinez has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Martinez uses the straight-line method of depreciation on similar owned equipment. Click here to view factor tables. (a) Your answer is correct. Prepare the journal entries, that Martinez should record on December 31, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to o decimal places, e.g. 58,971.) Debit Credit 223429 Date Account Titles and Explanation December 31, 2020 Right-of-Use Asset M Lease Liability (To record leased asset and related liability.) 223429 Lease Liability 51025 Cash 51025 (To record the first rental payment.) SHOW LIST OF ACCOUNTS SHOW SOLUTION LINK TO TEXT LINK TO TEXT Attempts: 1 of 5 used (b) Your answer is correct. Prepare the journal entries, that Martinez should record on December 31, 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit December 31, 2021 Amortization Expense 31918 31918 Right-of-Use Asset (To record amortization.) Interest Expense 13792 Lease Liability 37233 Cash 51025 (To record annual payment on lease liability.) SHOW LIST OF ACCOUNTS SHOW SOLUTION LINK TO TEXT LINK TO TEXT (c) Your answer is partially correct. Try again. Prepare the journal entries, that Martinez should record on December 31, 2022. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to o decimal places e.g. 58,971.) Debit Credit Date Account Titles and Explanation December 31, 2022 Amortization Expense 31918 Right-of-Use Asset 31918 (To record annual amortization on leased assets.) X Interest Expense 4084 Lease Liability 46941 51025 Cash (To record annual payment on lease liability.) SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT
