On the below question- can someone provide the journal entries to get to the solution. Thanks everyone!
In the long-term liabilities section of its balance sheet at December 31, Year 3, Mene Co. reported a finance lease liability of $75,000, net of current portion of $1,364. Payments of $9,000 were made on both January 2, Year 4, and January 2, Year 5. Mene’s incremental borrowing rate on the date of the lease was 11%, and the lessor’s implicit rate, which was known to Mene, was 10%. In its December 31, Year 4, long-term liabilities section of the balance sheet, what amount should Mene report as a finance lease liability, net of current portion?
The total lease liability at the end of year 3 is $76,364 so they should have $7,636 of accrued interest payable on the lease due with the payment on January 2, year 4. The accrued interest is calculated using the 10% rate implicit in the lease since it is known to the lessee. The difference between accrued interest and the $9,000 payment is the current portion of the lease at the end of year 3, or $1,364. This reduces the lease liability to $75,000 and thus at the end of year 4 there will be $7,500 in accrued interest payable. Thus the current portion of the liability at the end of the year will be $1,500 (9,000 – 7,500) and the noncurrent portion is $73,500.