Question

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.)

Answer 1

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)