Question

The following relate to an operating lease agreement:

1. The lease term is 3 years, beginning January 1, 2018.
2. The leased asset cost the lessor $850,000 and had a useful life of eight years with no residual value. The lessor uses straight-line depreciation for its depreciable assets.
3. Annual lease payments at the beginning of each year were $144,500.
4. Incremental costs of negotiating costs of negotiating and consummating the completed lease transaction incurred by the lessor were $3,150.

Required:
Prepare the appropriate entries for the lessor from the beginning of the lease through the end of the lease term. (Round your intermediate and final answers to the nearest whole dollar amount. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. Record the cash received. (Jan 1, 2018)

2. Record the payment of initial direct costs. (Jan 1, 2018)

3. Record the cost of the lease. (Dec 31, 2018)

4. Record the depreciation expense. (Dec 31, 2018)

5. Record the rent revenue. (Dec 31, 2018)

6. Record the cash received. (Jan 1, 2019)

7. Record the cost of the lease. (Dec 31, 2019)

8. Record the depreciation expense. (Dec 31, 2019)

9. Record the rent revenue. (Dec 31, 2019)

10. Record the cash received. (Jan 1, 2020)

11. Record the cost of the lease. (Dec 31, 2020)

12. Record the depreciation expense. (Dec 31, 2020)

13. Record the rent revenue. (Dec 31, 2020)

Answer 1

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Event	Date	Account	Debit	Credit
1	Jan 1 2018	Cash	$144,500
		Deferred Lease Revenue		$144,500
		(To record cash received)
2	Jan 1 2018	Deferred Initial Direct Cost	$    3,150
		Cash		$    3,150
		(To record cash payment)
3	Dec 31 2018	Lease Expense ($3,150/3 Years)	$    1,050
		Deferred Initial Direct Cost		$    1,050
		(To record cost of lease)
4	Dec 31 2018	Depreciation Expense ($850,000/8 Years)	$106,250
		Accumulated Depreciation		$106,250
		(To record depreciation expense)
5	Dec 31 2018	Deferred Lease Revenue	$144,500
		Rent Revenue		$144,500
		(To record revenue)
6	Jan 1 2019	Cash	$144,500
		Deferred Lease Revenue		$144,500
		(To record cash received)
7	Dec 31 2019	Lease Expense ($3,150/3 Years)	$    1,050
		Deferred Initial Direct Cost		$    1,050
		(To record cost of lease)
8	Dec 31 2019	Depreciation Expense ($850,000/8 Years)	$106,250
		Accumulated Depreciation		$106,250
		(To record depreciation expense)
9	Dec 31 2019	Deferred Lease Revenue	$144,500
		Rent Revenue		$144,500
		(To record revenue)
10	Jan 1 2020	Cash	$144,500
		Deferred Lease Revenue		$144,500
		(To record cash received)
11	Dec 31 2020	Lease Expense ($3,150/3 Years)	$    1,050
		Deferred Initial Direct Cost		$    1,050
		(To record cost of lease)
12	Dec 31 2020	Depreciation Expense ($850,000/8 Years)	$106,250
		Accumulated Depreciation		$106,250
		(To record depreciation expense)
13	Dec 31 2020	Deferred Lease Revenue	$144,500
		Rent Revenue		$144,500
		(To record revenue)