Question

Marin 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 $15,540 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 $5,752.82, with each payment
increasing by a constant rate of 5% from the previous payment (i.e., the second payment will be $6,040.46 and the third and final payment will be $6,342.48).

4.Marin’ incremental borrowing rate is 8%. The rate implicit in the lease is unknown.

(a) Prepare Marin' 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.) Click here to view factor tables. Date Account Titles and Explanation Debit (To record interest expense) (To record amortization of the right-of-use asset) (To record interest expense) (To record amortization of the right-of-use asset)

5.Marin uses straight-line depreciation for all similar cars.

Answer 1

Answer :-

The Journal entry to record in the books of Marin are as follows

Date	Particulars	Debit ($)	Credit ($)
Dec. 31, 2019	Right use Asset A/c Dr.	$15,540
	To Lease Liability A/c		$15,540
Dec. 31, 2020	Interest expense A/c Dr. ($15,540 × 8% borrowing rate)	$1,243.2
	Lease liability A/c Dr. ($5,752.82 - $1,243.2)	$4,509.62
	To Cash A/c		$5,752.82
	(To record interest expense)
Dec. 31, 2020	Amortization expense A/c Dr. (Asset value /Estimated useful life =$15,540/ 3)	$5,180
	To Right-of-use Asset A/c		$5,180
	(To record amortization of the Right-of-use asset)
Dec. 31, 2021	Interest expense A/c Dr. (($15,540 - $4,509.62) × 8%)	$882.43
	Lease Liability A/c Dr. ($6040.46 - $5,518.03)	$5,518.03
	To Cash A/c		$6,040.46
	(To record interest expense)
Dec. 31, 2021	Amortization expense A/c Dr. ($15,540 / 3)	$5,180
	To Right-of-use asset A/c		$5,180
	(To record amortization of the right-of-use asset)