Question

National Leasing leases equipment to a variety of businesses. The company's primary service is providing alternate financing by acquiring equipment and leasing it to customers under long-term leases. National earns interest under these arrangements at a 10% annual rate.

The company leased production equipment it purchased on December 31 2015 for 270000 to a local company, Greenberg Inc. The six year operating lease term commence January 1, 2016, and the lease contract specified annual payments of 24000 beginning December 31, 2016 and each December 31 through 2021. The machine's estimated useful life is 15 years with no estimated residual value.

Greenberg had the option to terminate the lease after 4 years. At the beginning of the lease, there was no reason to believe the lease would be terminated.

Required: Round your answers to the nearest whole dollar amounts.

1. Prepare the appropriate journal entries for National Leasing from the beginning of the lease through the end of 2016. (1/1/2016, 12/31/2016)

2. Prepare the appropriate journal entries pertaining to the lease for National Leasing at December 31, 2017.

Answer 1

This is as told in question an operating lease.

The following will be entries passed in books of national leasing.

Date	Particulars	Amt	Amt
31/12/2016	Cash/ Bank Ac Dr	24000
	To Finance income		24000
31/12/2016	Depreciation	18000
	To Fixed Asset		18000
31/12/2017	Cash/ Bank Ac Dr	24000
	To Finance income		24000
31/12/2017	Depreciation	18000
	To Fixed Asset		18000
31/12/2018	Cash/ Bank Ac Dr	24000
	To Finance income		24000
31/12/2018	Depreciation	18000
	To Fixed Asset		18000
31/12/2019	Cash/ Bank Ac Dr	24000
	To Finance income		24000
31/12/2019	Depreciation	18000
	To Fixed Asset		18000
31/12/2020	Cash/ Bank Ac Dr	24000
	To Finance income		24000
31/12/2020	Depreciation	18000
	To Fixed Asset		18000
31/12/2021	Cash/ Bank Ac Dr	24000
	To Finance income		24000
31/12/2021	Depreciation	18000
	To Fixed Asset		18000