Gidget Corp. entered into a lease on January 1, 2019, to rent a car for a three-year period. Payments are $700 per month, $600 of which is for the car rental and $100 of which is for a repairs and maintenance service agreement. The first payment is due on the commencement date. Gidget has the option to purchase the vehicle at the end of the lease period for $20,000, which approximates its estimated fair value at the end of the lease term. The residual value of the leased asset is estimated to be $5,000 at the end of its expected economic life of 10 years. Gidget, which has an incremental borrowing rate of 6% per annum (0.5% per month), is unable to readily identify the interest rate implicit in the lease. Gidget depreciates all assets on a straight-line basis and has a December 31 year end.

Required:

a. Assume that Gidget Corp. elects to account for the lease and non-lease components of the contract as a single lease component. Prepare the journal entries for January 2019 and February 1, 2019. 

b. Assume that Gidget Corp. does not elect to account for the lease and non-lease components of the contract as a single lease component. Prepare the journal entries for January 2019 and February 1, 2019.