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malfutka [58]
3 years ago
12

Metlock enters into an agreement with Traveler Inc. to lease a car on December 31, 2019. The following information relates to th

is 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 $15,270 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 $5,652.82, with each payment increasing by a constant rate of 5% from the previous payment (i.e., the second payment will be $5,935.46 and the third and final payment will be $6,232.23).
4. Metlock’ incremental borrowing rate is 8%. The rate implicit in the lease is unknown. 5. Metlock uses straight-line depreciation for all similar cars.

Required:
Prepare Windsor’ journal entries for 2016, 2017, and 2018.
Business
1 answer:
Setler [38]3 years ago
4 0

Answer:

Dec. 31, 2016

Dr Right use Asset $15,270

Cr To Lease Liability $15,270

Dec. 31, 2017

Dr Interest expense $1,221.6

Dr Lease liability $4,431.22

Cr Cash $5,652.82

Dec. 31, 2017

Dr Amortization expense$5,090

Cr To Right-of-use Asset $5,090

Dec. 31, 2018

Dr Interest expense $867.10

Dr Lease Liability $5,071.36

Cr To Cash A/c $5,935.46

Dec. 31, 2018

Dr Amortization expense $5,090

Cr To Right-of-use asset A/c $5,090

Explanation:

Date Particulars Debit ($) Credit ($)

Dec. 31, 2016

Dr Right use Asset $15,270

Cr To Lease Liability $15,270

Dec. 31, 2017

Dr Interest expense

($15,270 × 8% borrowing rate) $1,221.6

Dr Lease liability

($5,652.82 - $1,221.6) $4,431.22

Cr Cash $5,652.82

(To record interest expense)

Dec. 31, 2017

Dr Amortization expense (Asset value /Estimated useful life $15,270/ 3) $5,090

Cr To Right-of-use Asset $5,090

(To record amortization of the Right-of-use asset)

Dec. 31, 2018

Dr Interest expense

(($15,270 - $4,431.22) × 8%) $867.10

Dr Lease Liability $5,071.36

Cr To Cash A/c $5,935.46

(To record interest expense)

Dec. 31, 2018

Dr Amortization expense ($15,270 / 3) $5,090

Cr To Right-of-use asset $5,090

(To record amortization of the right-of-use asset)

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The more conservative a firm's management is, the higher its total debt to total capital ratio [measured as (Short-term debt Lon
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The Journal entry is shown below:-

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    To Common stock $2,000

    To Additional paid in capital $38,000

(Being issue of common stock is recorded)

2. Accounts receivables Dr, $18,800  

      To Service revenue $18,800

(Being service revenue is recorded)

3. Supplies Dr, $6,500  

       To Accounts payable $6,500

(Being supplies is recorded)

4. Treasury stock Dr, $20,900

[1,100 × $19]  

       To Cash $20,900

(Being treasury stock is recorded)

5, Accounts payable Dr, $18,100  

        To Cash $18,100

(Being cash paid is recorded)

6. Cash Dr, $50,700  

       To Service revenue $50,700

(Being cash received is recorded)

7. Cash Dr, $18,200  

      To Accounts receivables $18,200

(Being cash received is recorded)

8. Dividends Dr, $3,380

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9. Cash Dr, $14,700

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[700 × $19]

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(Being cash is recorded)

10. Salaries expense Dr, $43,600  

        To cash $43,600

(Being salary expenses is recorded)

11. Utilities expense Dr, $7800  

      To utilities payable $7800

(Being  utilities expense is recorded)

12. Supplies expense Dr, $8,900

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       To supplies $8,900

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(Being depreciation expense is recorded)

14. Income tax expense $2,700  

       To Income tax payable $2,700

(Being income tax expenses is recorded)

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