Question

In: Accounting

On January 1, 2018, entered into a three-year lease for new office space agreeing to lease...

On January 1, 2018, entered into a three-year lease for new office space agreeing to lease payments of: $7,000 in 2018, $6,000 in 2019 and $5,000 in 2020. Payments are due on December 31 of each year with the first payment being made on December 31, 2018. Harlon is aware that the lessor used a 5% interest rate when calculating lease payments. (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: 1-4. Prepare the appropriate entries for Harlon Consulting on January 1, 2018, December 31, 2018, 2019 and 2020 to record the lease. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate and final answers to nearest whole dollar.)

Solutions

Expert Solution

Solution:

Present value of lease payment
Period Lease Payment PV Factor Present value
1 $7,000.00 0.952381 $6,667
2 $6,000.00 0.907029 $5,442
3 $5,000.00 0.863838 $4,319
Total $16,428
Lease Amortization Schedule
Date Lease payment Interest Expense Reduction in lease liability Lease liability
1-Jan-18 $16,428
31-Dec-18 $7,000 $821 $6,179 $10,249
31-Dec-19 $6,000 $512 $5,488 $4,762
31-Dec-20 $5,000 $238 $4,762 $0

Annual Amortization on leased assets = $16,428 / 3 = $5,476

Journal Entries - Zekany Corporation
Date Particulars Debit Credit
1-Jan-18 Lease office Dr $16,428.00
      To Lease Liability $16,428.00
(To record lease)
31-Dec-18 Interest Expense Dr $821.00
Lease liability Dr $6,179.00
      To Cash $7,000.00
(To record lease payment)
31-Dec-18 Amortization Expense Dr $5,476.00
      To Accumulated amortization $5,476.00
(To record amortization of leased asset)
31-Dec-19 Interest Expense Dr $512.00
Lease liability Dr $5,488.00
      To Cash $6,000.00
(To record lease payment)
31-Dec-19 Amortization Expense Dr $5,476.00
      To Accumulated amortization $5,476.00
(To record amortization of leased asset)
31-Dec-20 Interest Expense Dr $238.00
Lease liability Dr $4,762.00
      To Cash $5,000.00
(To record lease payment)
31-Dec-20 Amortization Expense Dr $5,476.00
      To Accumulated amortization $5,476.00
(To record amortization of leased asset)

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