Question

Teal Mountain Corporation recorded a right-of-use asset for $312,900 as a result of a finance lease on December 31, 2019. 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, 2019. 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

Answer 1

The provided entries reflect the initial recognition of a finance lease on December 31, 2019, by recording the right-of-use asset and lease liability, followed by recording the first lease payment. There was a date error in the question, which presumably should refer to 2019 instead of 2017.

Step-by-step explanation:

The question pertains to accounting for a finance lease transaction by Teal Mountain Corporation. Given that the lease commenced on December 31, 2019, and not in 2017, there appears to be a discrepancy in the question itself regarding the date. Assuming that the question intends to ask for the accounting entries for the initiation of the lease on December 31, 2019 (not 2017), here are the required entries:

• Recording the right-of-use asset and lease liability at the commencement of lease:
  
• Making the first lease payment on December 31, 2019:
  

It's important to note that the lease payments are typically split into an interest component and a reduction of the lease liability. However, detailed calculations for amortization of the lease liability and the interest expense are not provided, as only the amount to be debited and credited on December 31, 2019, is requested. Therefore, the interest portion has not been separately calculated or recorded in this entry.

Answer 2

Date Account titles and Explanation Debit Credit

31 Dec 19 Lease liability $32,982

Interest expense $25,447

[(312900-58,429)*10%]

Cash $58,429

(To record interest expense)

31 Dec 19 Amortization expense $44,700

[312,900/7]

Right of use asset $44,700

(To record amortization of the right of use asset)