50.1K

Verified Solution

Link Copied!

Exercise 21A-1 a Splish Brothers enters into an agreement withTraveler Inc. to lease a car on December 31, 2016. The followinginformation relates to this agreement. 1. The term of thenon-cancelable lease is 3 years with no renewal or bargain purchaseoption. The remaining economic life of the car is 3 years, and itis expected to have no residual value at the end of the lease term.2. The fair value of the car was $14,730 at commencement of thelease. 3. Annual payments are required to be made on December 31 atthe end of each year of the lease, beginning December 31, 2017. Thefirst payment is to be of an amount of $5,452.82, with each paymentincreasing by a constant rate of 5% from the previous payment(i.e., the second payment will be $5,725.46 and the third and finalpayment will be $6,011.73). 4. Splish Brothers’ incrementalborrowing rate is 8%. The rate implicit in the lease is unknown. 5.Splish Brothers uses straight-line depreciation for all similarcars. (a) Prepare Splish Brothers’ journal entries for 2016, 2017,and 2018.

(Credit account titles are automatically indented when theamount is entered. Do not indent manually. For calculationpurposes, use 5 decimal places as displayed in the factor tableprovided and round final answers to 2 decimal places, e.g.5,275.25.)

Date    Account Titles and Explanation   Debit Credit

12/31/16

12/31/17

(To record interest expense)

12/31/17

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

12/31/18

(To record interest expense)

12/31/18

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