Question

You are the new controller for Banana, Inc.. The company CFO has asked you to develop the appropriate worksheets and then journal entries to support several lease contracts as applied based on the new lease regulations. Your accounting group provided you the following information regarding the lease:

On January 2, 2019, another of Banana’s subsidiaries, Apple, entered into an operating lease for four years, with semi-annual lease payments as follows:  payments 1 and 2 = $22,500; payments 3 and 4 = $27,000; payments 5 and 6 = $30,000; and payments 7 and 8 = $32,000.  Payments are to be made on the inception date and every June 30 and December 31 thereafter.  The lessor’s interest rate is 6%.  Provide the amortization table for the lease and the journal entries required at the inception of the lease and the lease payment on June 30, 2020.  The lessee records amortization expense each time a lease payment is made.

Answer 1

As the Interest rate implicit in the Lease is 6% annually and the payments are as in the table, the amortization table for the lease will be as follows.

Journal Entries -

At the inception -

Finance Lease Right-of-use Asset 166156

To Finance Lease Liability 166156

(To record the Right-of-use Asset and Liability at the Present value of lease payments.)

As the payment of 22500 is made at inception, the entry shall be

Finance Lease Liability 22500

To Cash/Bank 22500

(To recoed the payment at inception)

On June 30,

Finance Lease Liability 18190

Interest Expense 4310

To Cash/Bank 22500

(To record the interest expense, semi-annual lease payment and amortization of lease liability.)

Depreciation Expense 20770

To Finance Lease Right-of-use Asset 20770

(To record Amortization expense on Asset. on a Straight-line basis.)