Question

On January 1, 2018, 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 $16,500 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $103,000 and were expected to have a useful life of Five years with no residual value. Both firms record amortization and depreciation semi-annually. (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: Prepare the appropriate entries for both the lessee and the lessor from the beginning of the lease through the end of 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate calculations to the nearest whole dollar amount.)

Answer 1

FACTS
Lease a computer worth		$103,000.00
Lease term		2	yrs
Annual payment		54,610
Estimated life of a computer		5	yrs
Effective borrowing rate		4%
PRESENT VALUE OF PAYMENTS		$103,000
ANNUAL DEPRECIATION		$20,600
CAPITAL LEASE	OPENING			YEAR ONE		YEAR TWO		YEAR THREE		YEAR FOUR
Equipment	103,000
Cap lease obligation		103,000
Cash					54,610		54,610		54,610
Interest expense				4,120		2,100		(0)		(2,184)
Capital lease obligation				50,490		52,510		54,610		2,184
Depreciation expense				25,750		25,750		25,750		25,750
Accumulated depreciation					25,750		25,750		25,750		25,750
OPERATING LEASE
Rent expense	NO OPENING ENTRY!			54,610		54,610		54,610
Cash					54,610		54,610		54,610
COMPARE EXPENSE OF THE TWO:
CAPITAL LEASE			OPERATING LEASE
Interest expense	4,036			Rent expense		163,831
Depreciation expense	103,000
	107,036
DIFFERENCE BETWEEN THE TWO OVERALL:			NONE!!!!