On January 1, 2018, Rick\'s Pawn Shop leased a truck from Chumley Motors for a s
ID: 2403824 • Letter: O
Question
On January 1, 2018, Rick's Pawn Shop leased a truck from Chumley Motors for a seven-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 $11,50 due on December 31 of each year, calculated by the less or using a 6%interest rate. The agreement is considered an operating lease. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare Rick's Journal entry to record for the right-of-use asset and lease liability at January 1, 2018. 2. Prepare the Journal entries to record interest and amortlzation at December 31, 2018.Explanation / Answer
Amortization expense1,000,000Accumulated amortization1,000,000
DR CR Right-of-use asset $406,213 Lease liability $331,213 Cash $ 75,000