Assume that on December 31, 2019, Marin Aerospace signs a 8-year, non-cancelable lease agreement to lease a hanger from Aero Field Management Company. The following information pertains to this lease agreement: 1. The agreement requires equal rental payments of $159,660 beginning on December 31, 2019. 2. The fair value of the building on December 31, 2019 is $1,082,878. 3. The building has an estimated economic life of 10 years, a guaranteed residual value of $50,900, and an expected residual value of $36,100. Marin depreciates similar buildings on the straight-line method. 4. The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor. 5. Marin’s incremental borrowing rate is 6% per year. The lessor’s implicit rate is not known by Marin. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Prepare the journal entries on the lessee’s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2019, 2020, and 2021. Marin’s fiscal year-end is December 31. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Assume that on December 31, 2019, Marin Aerospace signs a 8-year, non-cancelable lease agreement to lease a hanger from Aero Field Management Company. The following information pertains to this lease agreement:

1.		The agreement requires equal rental payments of $159,660 beginning on December 31, 2019.
2.		The fair value of the building on December 31, 2019 is $1,082,878.
3.		The building has an estimated economic life of 10 years, a guaranteed residual value of $50,900, and an expected residual value of $36,100. Marin depreciates similar buildings on the straight-line method.
4.		The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor.
5.		Marin’s incremental borrowing rate is 6% per year. The lessor’s implicit rate is not known by Marin.

Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Prepare the journal entries on the lessee’s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2019, 2020, and 2021. Marin’s fiscal year-end is December 31. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.)

Date
Account Titles and Explanation
Debit
Credit
(To record the lease)
(To record first lease payment)
(To record amortization of the right-of-use asset)
(To record second lease payment)
(To record amortization of the right-of-use asset)
>

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