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 6%. The contract calls for four rent payments of $11,000 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $92,000 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

.1* Record the beginning of the lease for Nath-Langstrom Services

2*Record the lease payment by Nath-Langstrom Services

3*Record the amortization for Nath-Langstrom Services

4*Record the lease payment made by Nath-Langstrom Services

5*Record amortization for Nath-Langstrom Services

2. Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first year of the lease.

1*Record the lease payment received by ComputerWorld Leasing.

2*Record depreciation for ComputerWorld Leasing.

3*Record the lease payment received by ComputerWorld Leasing.

4*Record depreciation for ComputerWorld Leasing

Answer 1

Nath-Langstrom Services Inc

Journal Entries

Date	Account	Debit ($)	Credit ($)
01-Jan-21	Right of use asset (see working note 1 below)	40,888
	Lease Liability		40,888
	(Entry to record lease liability)
30-Jun-21	Interest Expense (see working note 2 below)	1,227
	Lease Liability	9,773
	Cash		11,000
	(Entry to record interest expense and lease payment)
30-Jun-21	Amortization Expense	9,773
	Right of use asset		9,773
	(Entry to record amortization expense)
31-Dec-21	Interest Expense (see working note 2 below)	933
	Lease Liability	10,067
	Cash		11,000
	(Entry to record interest expense and lease payment)
31-Dec-21	Amortization Expense	10,067
	Right of use asset		10,067
	(Entry to record amortization expense)

Working Notes:

1	Present Value of lease payments	=11000 x 3.7171*
		=40,888
	* Present value of an annuity of $1: n = 4, i = 3%.
2	Amortization Schedule
Date	Payment	Interest @ 3% on outstanding balance	Decrease in outstanding liability	Outstanding liability
01-Jan-21	0	0	0	40,888
30-Jun-21	11,000	1,227	9,773	31,115
31-Dec-21	11,000	933	10,067	21,048

Computer World Leasing

Journal Entries

Date	Account	Debit ($)	Credit ($)
30-Jun-21	Cash	11,000
	Lease Revenue		11,000
	(Entry to record amount received from lessee)
30-Jun-21	Depreciation Expense	9,200
	Accumulated Depreciation		9,200
	=((92000/5)/2)
	(Entry to record semi annual depreciation expense)
31-Dec-21	Cash	11,000
	Lease Revenue		11,000
	(Entry to record amount received from lessee)
31-Dec-21	Depreciation Expense	9,200
	Accumulated Depreciation		9,200
	=((92000/5)/2)
	(Entry to record semi annual depreciation expense)