DU Journeys enters into an agreement with Traveler plc to lease a used car on December 31, 2021. 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 used 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 made on December 31 at the end of each year of the lease, beginning December 31, 2022. The first payment is £5,552.82, with each payment increasing by a constant rate of 5% from the previous payment.4. DU Journeys’ incremental borrowing rate is 8%. Traveler plc’s rate implicit in the lease is unknown.5. DU Journeys uses straight-line depreciation for all similar cars.Instructiona. Prepare DU Journeys’ journal entries for 2021, 2022, and 2023 (To simplify the calculation, round the amount of lease liability to the nearest integral)[Hint: DU Journeys recognizes the lease asset and liability on Dec 31, 2021]b. Assume that, instead of a constant rate of increase, the annual lease payments will increase according to a price index determined by the concurrent market conditions. At its current level, the price index stipulates that the first rental payment should be £5,820. What would be the impact on the journal entries made by DU Journeys at commencement of the lease, as well as for subsequent years? PV of an ordinary annuityPV of an annuity duePV of a single sum(n)Periods8%8%8%10.92593 1.00000 0.9259321.78326 1.92593 0.8573432.577102.78326 0.79383 DU Journeys enters into an agreement with Traveler plc to lease a used car on December 31,2021. 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 used car is 3 years, and it is expected to have no residualvalue 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 made on December 31 at the end of each year of the lease, beginningDecember 31, 2022. The first payment is £5,552.82, with each payment increasing by aconstant rate of 5% from the previous payment.4. DU Journeys' incremental borrowing rate is 8%. Traveler plc's rate implicit in the lease isunknown.5. DU Journeys uses straight-line depreciation for all similar cars.Instructiona. Prepare DU Journeys’ journal entries for 2021, 2022, and 2023 (To simplify the calculation,round the amount of lease liability to the nearest integral)[Hint: DU Journeys recognizes the lease asset and liability on Dec 31, 2021]b. Assume that, instead of a constant rate of increase, the annual lease payments will increaseaccording to a price index determined by the concurrent market conditions. At its currentlevel, the price index stipulates that the first rental payment should be £5,820. What would bethe impact on the journal entries made by DU Journeys at commencement of the lease, aswell as for subsequent years?PV of an annuityPV of a singlePV of an ordinaryannuityduesum(n)Periods8%8%8%0.925931.0000010.925931.783261.9259320.857342.7832632.577100.79383

Journal entries refer to the systematic documentation of the financial transactions of a company in…

Answered: information relates to this agreement.…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Related questions

Question

DU Journeys enters into an agreement with Traveler plc to lease a used car on December 31, 2021. 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 used 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 made on December 31 at the end of each year of the lease, beginning December 31, 2022. The first payment is £5,552.82, with each payment increasing by a constant rate of 5% from the previous payment.

4. DU Journeys’ incremental borrowing rate is 8%. Traveler plc’s rate implicit in the lease is unknown.

5. DU Journeys uses straight-line depreciation for all similar cars.

Instruction

a. Prepare DU Journeys’ journal entries for 2021, 2022, and 2023 (To simplify the calculation, round the amount of lease liability to the nearest integral)

[Hint: DU Journeys recognizes the lease asset and liability on Dec 31, 2021]

b. Assume that, instead of a constant rate of increase, the annual lease payments will increase according to a price index determined by the concurrent market conditions. At its current level, the price index stipulates that the first rental payment should be £5,820. What would be the impact on the journal entries made by DU Journeys at commencement of the lease, as well as for subsequent years?