Question

CHAPTER 15(13.)

On January 1, 2018, Nath-Langstrom Services, Inc., a computer software training firm, leased several computers under a two-year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 4%. The contract calls for four rent payments of $15,500 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $101,000 and were expected to have a useful life of Five years with no residual value. Both firms record amortization and depreciation semi-annually. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
Prepare the appropriate entries for both the lessee and the lessor from the beginning of the lease through the end of 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate calculations to the nearest whole dollar amount.)

• Record the lease revenue received by ComputerWorld Leasing.
• Record the Depreciation expense for ComputerWorld Leasing.
• Record the lease revenue received by ComputerWorld Leasing.
• Record the Depreciation expense for ComputerWorld Leasing.

Answer 1

	Nath-Langstrom Services(Lesse)
Date	Particulars	Debit	Credit
a) Record the beginning of the lease for Nath-Langstrom Services.Jan,1,2018
A) Jan.1 2018	Leased equipment	$59,019.35
	Lease payable		$59,019.35
B) June 30. 2018	Lease Payable	$14,319.61
	Interest Exp.	$1,180.39
	Cash		$15,500
	Amortization expense ($59,019.35/4*1/2)	$7,377.42
	Leased equipment		$7,377.42
C) Dec 31,2018	Lease Payable	$14,606.01
	Interest Exp.	$893.99
	Cash		$15,500
	Amortization expense ($59,019.35/4*1/2)	$7,377.42
	Leased equipment		$7,377.42
	Computer World (Lessor)
D) June 30, 2018	Cash	$15,500
	Rent Revenue		$15,500
	Depreciation expense ($101,000/5 years)	$20,200
	Accumulated depreciation		$20,200
E) Dec 31,2018	Cash	$15,500
	Rent Revenue		$15,500
	Depreciation expense ($101,000/5 years)	$20,200
	Accumulated depreciation		$20,200
Present value of lease payments = $15000 x PVOA(4%/2,2*2)
$15500 x PVOA(2%,4) = 15500 x 3.8077	59019.35
Lease Amortization Schedule
	A	B	C= A -B	Previous year Bal. - C
Date	Annual Lease Payment Plus BPO	Interest on (previous year lease liability x 2%) Liability	Reduction of Lease Liability	Lease Liability
Jan 1, 2018				$59,019.35
Jun 30, 2018	$15,500	$1,180.39	$14,319.61	$44,699.74
Dec 31, 2018	$15,500	$893.99	$14,606.01	$30,093.73
Jun 30, 2019	$15,500	$601.87	$14,898.13	$15,195.61
Dec 31, 2019	$15,500	$303.91	$15,196.09	-$0.48