Question

On January 1, 2021, 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 $13,500 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $97,000 and were expected to have a useful life of five years with no residual value. Both firms record amortization and depreciation semiannually. (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. Prepare appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease.
2. Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first year of the lease.

Answer 1

1 ) Journal Entries In the Books of Nath Langstrom Services Nc.( Lessee)

Lease Payable = Lease Rent x FV factor = $ 13,500 * 3.80773 = $ 51,404.35

Present value of Annuity , N= 4 payments , i= 2 % semiannually is 3.80773

Date	General Journal	Debit $	Credit $
January 1, 2021	Right of use asset	51404.35
	To Lease payable		51404.35
	To record Right of use assets at beginning )
June 30, 2021	Interest expense( 51404.35x 2%)	1028.08
	Lease payable ( 13500 – 1028.08)	12,471.91
	To Cash		13500
	(To record lease payment )
June 30, 2021	Amortization expense	12471.91
	To Right of use asset		12471.91
	(To record Amortization expense )
December 31, 2021	Interest expense ((51404.35– 12471.91) x 2%)	778.64
	Lease payable ( 13500 – 778.64)	12721.35
	To Cash		13500
	(To record lease payment )
December 31, 2021	Amortization expense	12721.35
	To Right of use asset		12721.35
	(To record Amortization expense )

Note – Amortization Table

Date	Payment	Interest @2%	Principal amount	Closing Balance
1/1/2021	-	-	-	51404.35
30/06/2021	13500	1028.08	12471.08	38932.92
31/12/2021	13500	778.64	12721.36	26211.56
30/06/2022	13500	524.23	12975.76	13235
31/12/2022	13500	264.71	13235	0

2) Journal Entries In the Books of Computerworld Leasing (Lessor)

Date	General Journal	Debit $	Credit $
January 1, 2021	No Journal Entry
June 30, 2021	Cash	13500
	To Lease Revenue		13500
	(To record cash received for lease )
June 30, 2021	Depreciation expense ((97,000/ 5 years )x 6/12 months)	9700
	To Accumulated Depreciation		9700
	(To record Depreciation expense for 6 Months )
December 31, 2021	Cash	13500
	To Lease Revenue		13500
	(To record cash received for lease )
December 31, 2021	Depreciation expense ((97,000/ 5 years )x 6/12 months)	9700
	To Accumulated Depreciation		9700
	(To record Depreciation expense for 6 Months )