Question

15 On January 1, 2018, Rick's Pawn Shop leased a truck from Chumley Motors for a six-year period with an option to extend the lease for three years. Rick's had no significant economic incentive as of the beginning of the lease to exercise the 3-year extension option. Annual lease payments are S 19,000 due on December 31 of each year, calculated by the lessor using a 5% nterest rate. The agreement is considered an operating lease. (FV of S1. PV of S1. EVA of $1 PVAotS1. EVAD of S1 and PVAD of S) (Use appropriate factor(s) from the tables provided.) 10 points Required: 1. Prepare Ricks journal entry to record for the right-of use asset and lease liabilty at January 1, 2018. eBook Print References 2. Prepare the journal entries to record interest and amortization at December 31, 2018. Complete this question by entering your answers in the tabs below Required 1 Required 2 Prepare Rick's journal entry to record for the right-of-use asset and lease liability at January 1, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to the nearest whole dolar amount.) View transaction list Journal entry worksheet Record the beginning of the lease for Rick's

Answer 1

Solution:

Particulars	UoM	Amount
annual lease payments	USD	19000
Interest rate	%	5
Lease period	years	6
Extension period	years	3
Yr	Lease payments	Discounting	PV
1	19000	0.952380952	18,095
2	19000	0.907029478	17,234
3	19000	0.863837599	16,413
4	19000	0.822702475	15,631
5	19000	0.783526166	14,887
6	19000	0.746215397	14,178
	114,000		96,438
Journal entry to record the right of use of asset and lease liability
			(in USD)
Date	Particulars	Dr	Cr
01-Jan-18	Right of use of asset	96438
	Lease liability		96438
Journal entry to record interest and amortisation
Date	Particulars	Dr	Cr
31-Dec-18	Lease Rent	18095
	Interest	905
	Cash		19000
31-Dec-18	Depreciation	16073
	Accumulated depreciation		16073
	(Being depreciation accounted on right of use; 96438/6 years)