Answered: DU Journeys enters into an agreement…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

DU Journeys 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 $15,000 at the commencement of the lease

3. Annual payments are required to be made on 12/31 at the end of each year of the lease, beginning December 31, 2020. The first payment is to be of an amount of $5,552.82, with each payment increasing by a constant rate of 5% from the previous payment (i.e., the second payment will be $5,830.46 and the third and final payment will be $6,121.98).

4. DU Journeys' incremental borrowing rate is 8%. The rate implicit in the lease is unknown.

5. DU Journeys uses straight-line depreciation for all similar cars.

Instructions

a) help me prepare DU Journeys' journal entries for 2019, 2020 and 2021.

b) Instead of a constant rate of increase, the annual lease payments will increase the annual lease payments will increase according to the Consumer Price Index (CPI). At this current level, the CPI stipulates that the first rental payment should be $5,820. What would be the impact on the journal entries made by DU Journeys at commencement of the lease, as well as for subsequent years?

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 4 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions