Question

Send to Gradebook < Prev Next > Question 1 --15 View Policies Current Attempt in Progress Kingbird 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 $13,650 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 $5,053.00, with each payment increasing by a constant rate of 5% from the previous payment (le, the second payment will be $5,305.65 and the third and final payment will be $5,570.93). 4. Kingbird' incremental borrowing rate is 8%. The rate implicit in the lease is unknown. 5. Kingbird uses straight-line depreciation for all similar cars, Prepare Kingbird' Journal entries for 2019,2020, and 2021. (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 2 decimal places, e.g. 5,275.25. Record journal entries in the order presented in the problem.)

Answer 1

Computation of value of Interest Expense, Lease Liability Payment, And depreciation Expense for Journal Entries

Date	Annual Payment (Given - 5% increase from previous Payment) ($)	Interest Expense (8% of Lease Liability on previous Year ending) ($)	Reduction of Lease Liability (Annual Payment - Interest Expense) ($)	Lease Liability ($)	Depreciation Expense (1/3 of $13650) ($)
31-12-2019				13650
31-12-2020	5053.00	1092 (13650* 8%)	3961.00 (5053 - 1092)	9689 (13650 - 3961.00)	4550
31-12-2021	5305.65	775.12 (9689* 8%)	4530.53 (5305.65 - 775.12)	5158.47 (9689 - 4530.53)	4550
31-12-2022	5570.93	412.68 (5158.47* 8%)	5158.47 (balance lease Liability)	0 (5158.47 - 5158.47)	4550

Journal Entries

Date	Account Titles And Explanations	Debit ($)	Credit ($)
31-12-2019	Right-of-use Asset	13650
	Lease Liability		13650
	(To record lease of asset)
31-12-2020	Interset Expense	1092
	Lease Liability	3961.00
	Cash		5053.00
	(to Record Interest Expense)
31-12-2020	Amortization Expense	4550
	Right-of-use Asset           (Depreciation value)		4550
	(to record Amortization of Right-of-use Asset )
31-12-2021	Interset Expense	775.12
	Lease Liability	4530.53
	Cash		5305.65
	(to Record Interest Expense)
31-12-2021	Amortization Expense	4550
	Right-of-use Asset           (Depreciation value)		4550
	(to record Amortization of Right-of-use Asset )