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24 April, 10:30

Skysong Corporation recorded a right-of-use asset for $249,000 as a result of a finance lease on December 31, 2019. Skysong's incremental borrowing rate is 11%, and the implicit rate of the lessor was not known at the commencement of the lease. Skysong made the first lease payment of $53,025 on on December 31, 2019. The lease requires 6 annual payments. The equipment has a useful life of 6 years with no residual value. Prepare Skysong's December 31, 2020, entries

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  1. 24 April, 13:28
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    The Journal entries are as follows:

    (i) On December 31, 2020

    Interest expense A/c Dr. $21,557

    Lease Liability A/c Dr. $31,468

    To cash $53,025

    (To record the interest expense)

    Workings:

    Interest expense = [ ($2,49,000 - $53,025) * 11%]

    = $21,557

    Lease Liability = Cash - Interest expense

    = $53,025 - $21,557

    = $31,468

    (ii) On December 31, 2020

    Amortization expense A/c Dr. $41,500

    To Accumulated Amortization (right of use) $41,500

    (To record the amortization of right - of - use of asset)

    Workings:

    Amortization expense:

    = $2,49,000 : 6 years

    = $41,500
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