Question

Rick Kleckner Corporation recorded a right-of-use asset for $300,000 as a result of a finance lease on December 31, 2016. Kleckner’s incremental borrowing rate is 8%, and the implicit rate of the lessor was not known at the commencement of the lease. Kleckner made the first lease payment of $48,337 on on December 31, 2016. The lease requires 8 annual payments. The equipment has a useful life of 8 years with no residual value. Prepare Kleckner's December 31, 2017, entries. Please use current law change

Answer 1

12/31/17 - To record interest expense:

interest expense dr 29530
interest payable 29530*

12/31/17 - To record amortization of the right-of-use asset:

depreciation expense- finance lease dr 37500
accumulated depreciation- finance lease 37500**

*(300000-53920) x 12% = 29530

**300000/8 = 37500