Question

Exercise 21-21 a-d

Bramble Incorporated leases a piece of equipment to Marin Corporation on January 1, 2020. The lease agreement called for annual rental payments of $5,702 at the beginning of each year of the 4-year lease. The equipment has an economic useful life of 6 years, a fair value of $28,100, a book value of $23,100, and both parties expect a residual value of $8,350 at the end of the lease term, though this amount is not guaranteed. Bramble set the lease payments with the intent of earning a 5% return, and Marin is aware of this rate. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature.

ARIN CORP Lease Amortization Schedule Annuity-Due Basis Reduction of Annual Payment Interest on Liability Lease Liability Lease Liability Date 1/1/20 1/1/20 1/1/21 1/1/22 1/1/23 Lease Expense Schedule Interest on Lease Liability Lease Expense (Straight-Line) Amortization of Carrying Value of ROU Asset Date ROU Asset 1/1/20 12/31/20 12/31/21 12/31/22 12/31/23 Prepare the journal entries for Marin for 2020 and 2021. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.) Account Titles and Explanation Debit Credit Date (To record the lease) (To record lease payment) Suppose Marin incurs initial direct costs of $750 related to the lease. Prepare the journal entries for 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.) Account Titles and Explanation Credit Debit Date (To record the lease) (To record lease payment)

Answer 1

Loan Amortisation Schedule

Year	Annual Payment	Interest	Reduction on lease	Lease Liability
1/1/20	NIL	NIL	NIL	21229
1/1/20	5702	NIL	5702	15527
1/1/21	5702	776	4926	10601
1/1/22	5702	530	5172	5429
1/1/23	5702	272	5429	NIL

Lease Expense

Date Lease expense Interest on Lease Liability Amortisation OF ROU Carrying Value of ROU assets 01/01/20 0 0 0 21229 31/12/20 6083 776 5307 15922 31/12/21 5837 530 5307 10615 31/12/22 5579 272 5307 5307 31/12/23 5307 0 5307 0

Journal Entries

01/01/20 Right of use asset a/c Dr 21229 To Lease liability a/c 21229 01/01/20 Lease Liability a/c Dr 5702 To Cash a/c 5702 31/12/20 Amortisation Expense a/c Dr 5307 To Right of Use asset a/c 5307 01/01/2021 Interest expense a/c Dr 776 Lease Liability a/c Dr 4926 To Cash a/c 5702

Journal entries

01/01/20	Right of Use asset a/c (21229+750) Dr	21979
	To Lease liability		21229
	To Cash		750
0/01/20	Lease Liability a/c Dr	5702
	To Cash		5702
31/12/20	Amortisation expense Dr	5495
	To Right of Use asset		5495

Please comment in case of any query.