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 $15,500 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $101,000 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.

Answer 1

a) Journal Entries in the books of Lessee :-

Date	Particulars	Debit($)	Credit($)
Jan 1	Right of use Asset	59020
	To Lease Payable A/c ($15500*3.80773F)		59020
	(To record the inception of lease payable)
Jun 30	Interest Expense A/c Dr. (2%*$59020)	1180
	Lease Payable A/c Dr.	14320
	To Cash A/c		15500
	(To record the lease payament)
Jun 30	Amortization Expense A/c Dr. ($15500-$1180)	14320
	To Right of Use Asset A/c		14320
	(To Record the amortization Expense)
Dec 31	interest Expense A/c Dr. (2%*($59020-$14320))	894
	Lease Payable A/c Dr.	14606
	To Cash A/c		15500
	(To Record the lease payment)
Dec 31	Amortization Expense A/c Dr. ($15500-$894)	14606
	To Right of use Asset A/c		14606
	(To Record the amortization expense)

b) Journal Entries in the books of Lessor :-

Date	Particulars	Debit($)	Credit($)
Jun 30	Cash A/c Dr.	15500
	To Lease Revenue A/c		15500
	(To Record the lease revenue)
June 30	Depreciation Expense A/c Dr.($101000 / 10)	10100
	To Accumulated Depreciation A/c		10100
	(To Record the Depreciation Expense)
Dec. 31	Cash A/c Dr.	15500
	To Lease Revenue A/c		15500
	(To Record the lease revenue)
Dec. 31	Depreciation Expense A/c Dr.($101000 / 10)	10100
	To Accumulated Depreciation A/c		10100
	(To Record the Depreciation Expense)