Question

Brief Exercise 21-06 Metlock Company leased equipment from Costner Company, beginning on December 31, 2019. The lease term is 6 years and requires equal rental payments of $24,542 at the beginning of each year of the lease, starting on the commencement date (December 31, 2019). The equipment has a fair value at the commencement date of the lease of $120,000, an estimated useful life of 6 years, and no estimated residual value. The appropriate interest rate is 9%. Click here to view factor tables. Prepare Metlock's 2019 and 2020 journal entries, assuming Metlock depreciates similar equipment it owns on a straight-line basis. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to I decimal places, e.g. 5,275.) Date Account Titles and Explanation Debit Credit 12/31/19 Right-of-Use Asset 0 120000 120000 Lease Liability (To record lease liability) 12/31/19 Lease Liability 24542 24542 Cash (To record lease payment) 12/31/20 (To record interest expense) 12/31/20 (To record amortization of the right-of-use asset)

Answer 1

Journal Entries:

Date	Account title and explanation	Debit	Credit
12/31/19	Right-of-Use Asset	$120,000
	Lease liability		$120,000
	[To record lease liability]
12/31/19	Lease liability	$24,542
	Cash		$24,542
	[To record lease payment]
12/31/20	Interest expense [(120,000-24,542) x 9%]	$8,591
	Lease liability	$15,951
	Cash		$24,542
	[To record interest expense]
12/31/20	Amortization expense [$120,000/6 years]	$20,000
	Right-of-Use asset		$20,000
	[To record amortization of the right-of-use asset]