Question

On January 1, 2020, the company signed on a lease contract which qualifies as finance lease. It calls for annual payments of $52,538 at 1/1/2020 for the first payments, and 12/31 of each year thereafter over a six-year lease term. The present value of total lease payment is $280,000 under 5% annual interest rate. Make journal entries for each of following dates, including any interest or amortization expenses.

January 1, 2020, signs the lease contract and makes the first payment of $52,538:

December 31, 2020, fiscal year-end, the second payment of $52,538:

December 31, 2021, fiscal year-end, the third payment of $52,538:

Answer 1

1.1.2020

Asset a/c ....dr 280000(280000 or p.v of M.L.P whicheve is less)

To Finance lease liability..280000

Finance lease liability...dr 52538

To lease payment 52538

31.12.2020

Interest.........dr 13648(2227462*6%)

To finance lease liability 103648

Finance lease liability...dr 52538

To leade payment 52538

31.12.2021

Interest.........dr 11314(188572*6%)

To finance lease liability 11314

Finance lease liability...dr 52538

To Lease payment 52538