Solution:
Date Account Titles & Explanation Debit Credit
12/31/2019 Leased Car 18,780
Lease Liability 18,780.00
(Initial recording of leased car at fair value)
12/31/2020 Interest Expense 1,502.40
Lease Liability 5,449.60
Cash 6,952.00
(Interest expenses and payment recorded)
12/31/2020 Depreciation Expense on Car 6,260.00
Accumulated Depreciation on Car 6,260.00
(Depreciation recognized on leased car)
12/31/2021 Interest Expense 1,066.43
Lease Liability 6,233.17
Cash 7,299.60
(Interest expenses and payment recorded)
12/31/2018 Depreciation Expense on Car 6,260.00
Accumulated Depreciation on Car 6,260.00
(Depreciation recognized on leased car)
Calculation of Interest
Date Cash Payment Interest Expense Lease Liability
12/31/2016 18,780.00
12/31/2017 6,952.00 1,502.40 13,330.40
12/31/2018 7,299.60 1,066.43 7,097.23
12/31/2019 7,664.58 567.78 0.43
Depreciation as per SIM method Depreciation
= Fair Value of Asset / Useful life Depreciation = 18780/3 = 6260
