Question

In: Accounting

DU Journeys enters into an agreement with Traveler Inc. to lease a car on December 31,...

DU Journeys enters into an agreement with Traveler Inc. to lease a car on December 31, 2016. 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 commencement of the lease.

3.    Annual payments are required to be made on December 31 at the end of each year of the lease, beginning December 31, 2017. 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) Prepare DU Journeys' journal entries for 2016, 2017, and 2018.

How do i find the present value of the 3 yearly payments? I searched this question already and am confused on the answers i have found.

Solutions

Expert Solution


Related Solutions

DU Journeys enters into an agreement with Traveler Inc. to lease a car on December 31,...
DU Journeys enters into an agreement with Traveler Inc. to lease a car on December 31, 2016. The following information relates to this agreement. 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. The fair value of the car was $15,000 at commencement of the lease. Annual...
MetFast enters into an agreement with Traveler Inc. to lease a car on December 31, 2019....
MetFast 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 $15,270 at commencement of the lease....
Larkspur enters into an agreement with Traveler Inc. to lease a car on December 31, 2019....
Larkspur 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 $15,540 at commencement of the lease....
Exercise 21A-1 a Splish Brothers enters into an agreement with Traveler Inc. to lease a car...
Exercise 21A-1 a Splish Brothers enters into an agreement with Traveler Inc. to lease a car on December 31, 2016. 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 $14,730 at...
Intermediate, Inc. enters into a lease agreement with Irving, LLC to lease an automobile with a...
Intermediate, Inc. enters into a lease agreement with Irving, LLC to lease an automobile with a fair value of $75,000 under a 5-year lease on December 20, 2018. The lease commences on January 1, 2019, and Incentive will return the automobile to Bumble on December 31, 2023. The automobile has an estimated useful life of 7 years. Incentive made a lease payment of $10,000 on December 20, 2018. In addition, the lease agreement stipulates annual payments of $10,000, due on...
Poe Inc. enters into a lease agreement as lessor on January 1, 2020, to lease a...
Poe Inc. enters into a lease agreement as lessor on January 1, 2020, to lease a check-in kiosk to Nat Airlines. The normal selling price is $991,355. The term of the noncancelable lease is ten years and payments are required at the beginning of each year. The following information relates to this agreement: Nat Airlines has the option to purchase the kiosk for $5,000 when the lease expires at which time the fair value is expected to be $30,000. The...
On 31 December 2000, Columbia Inc. entered into an agreement with Scotia Ltd. to lease equipment...
On 31 December 2000, Columbia Inc. entered into an agreement with Scotia Ltd. to lease equipment with a useful life of 6 years. Columbia Inc. will make four equal payments of $134,000 at the beginning of each lease year. Columbia Inc. anticipates that the equipment will have a residual value of $91,200 at the end of the lease, net of removal costs. Columbia Inc. has the option of extending the lease by (1) paying $91,200 to retain the equipment or...
On December 31, 2020, Green Bank enters into a debt restructuring agreement with Kingbird Inc., which...
On December 31, 2020, Green Bank enters into a debt restructuring agreement with Kingbird Inc., which is now experiencing financial trouble. The bank agrees to restructure a $1.1-million, 12% note receivable issued at par by the following modifications: 1.Reducing the principal obligation from $1.1 million to $0.88 million 2.Extending the maturity date from December 31, 2020, to December 31, 2023 3.Reducing the interest rate from 12% to 10% Kingbird pays interest at the end of each year. On January 1,...
Leewin Brokerage enters into a lease agreement with Bumble Motors to lease an automobile with a...
Leewin Brokerage enters into a lease agreement with Bumble Motors to lease an automobile with a fair value of $77,000 under a 5−year lease on December​ 20, 2018. The lease commences on January​ 1, 2019, and Leewin will return the automobile to Bumble on December​ 31, 2023. The automobile has an estimated useful life of 7 years. Leewin made a lease payment of $10,300 on December​ 20, 2018. In​ addition, the lease agreement stipulates annual payments of $10,300​, due on...
On January 1, 2017, Marlene Corp. enters into an agreement with Dietrich Rentals Inc. to lease...
On January 1, 2017, Marlene Corp. enters into an agreement with Dietrich Rentals Inc. to lease a machine from them. Both corporations adhere to ASPE. The following data relate to the agreement: 1. The term of the non-cancellable lease is three years with no renewal option. Payments of $271,622 are due on December 31 of each year. 2. The fair value of the machine on January 1, 2017, is $700,000. The machine has a remaining economic life of 10 years,...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT