Metlock Company leased equipme
Metlock Company leased equipment from Costner Company, beginningon December 31, 2019. The lease term is 5 years and requires equalrental payments of $75,477 at the beginning of each year of thelease, starting on the commencement date (December 31, 2019). Theequipment has a fair value at the commencement date of the lease of$320,000, an estimated useful life of 5 years, and no estimatedresidual value. The appropriate interest rate is 9%.Click here to view factor tables.Prepare Metlock’s 2019 and 2020 journal entries, assuming Metlockdepreciates similar equipment it owns on a straight-line basis.(Credit account titles are automatically indented whenthe amount is entered. Do not indent manually. For calculationpurposes, use 5 decimal places as displayed in the factor tableprovided and round final answers to 0 decimal places, e.g.5,275.)
Answer:
| Preparation of JournalEntries | |||
| Date | Particulars | Debit (in$) | Credit (in$) |
| 31/12/2019 | Right of use Asset/Equipment | $320,000 | |
| Lease liability | $320,000 | ||
| (To record leaseliability) | |||
| 31/12/2019 | Lease liability | $75,477 | |
| Cash | $75,477 | ||
| (To record lease payment) | |||
| 31/12/2020 | Lease Liability |
$53,470 |
|
| Interest Expense[($320,000 – $75,477) x 9%] | $22,007 | ||
| Cash | $75,477 | ||
| (To record interestexpense) | |||
| 31/12/2020 | Amortisation expense($320,000 / 5 years) | $64,000 | |
| Accumulated amortisation – Right of use asset | $64,000 | ||
| (To record amortisation of the Rightof use asset ) |
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