Brief Exercise 21A-7 Teal Mountain Corporation recorded a right-of-use asset for

Question

Brief Exercise 21A-7 Teal Mountain Corporation recorded a right-of-use asset for $312,900 as a result of a finance lease on December 31, 2016. Teal Mountain's incremental borrowing rate is 10%, and the implicit rate of the lessor was not known at the commencement of the lease. Teal Mountain made the first lease payment of $58,429 on on December 31, 2016. The lease requires 7 annual payments. The equipment has a useful life of 7 years with no residual value. Prepare Teal Mountain's December 31, 2017, entries. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to O decimal places e.g. 5,275.) Date Account Titles and Explanation Debit Credit December 31, 2017 (To record interest expense) December 31, 2017 (To record amortization of the right-of-use asset) Click if you would like to Show Work for this question: Open Show Work

Explanation / Answer

Opening lease obligaiton balance= 312900

Interest for year= 312900*0.1= 31290

Total payment= 58429

Principle repayment= 58429-31290= 27139

Asset depreciation= 312900/7= 44700

Entry:

Date Account Debit credit Dec 31, 2017 Interest expense 31290 Lease obligation 27139 To Bank 58429 Dec 31, 2017 Depreciation expense 44700 Accummulated depreciation 44700

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