Question

Exercise 15-17 Lessee and lessor; operating lease [LO15-4]

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 $18,000 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $106,000 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

In the Books of Lessee :						In the Books of Lessor :
Date	General Journal	Debit	Credit			Date	General Journal	Debit	Credit
01-01-18	Right of use equipment	$68,539		(18000*3.8077)		30-06-18	Cash	$     18,000
	Lease payable		$68,539				Lease revenue		$     18,000
							(To Record the lease revenue)
31-03-18	Interest expense	$ 1,371		(68539*2%)
	Lease payable	$16,629		(18000-1371)		30-06-18	Depreciation	$     10,600			(106000-0)/5 divided by 2
	Cash		$18,000				To Accumulated depreciation		$     10,600
							(To record the dep expense)
31-03-18	Amortization expense	$16,629
	Right of use equipment		$16,629			31-12-18	Cash	$     18,000
							Lease receivable		$     18,000
30-06-18	Interest expense	$ 1,557		(68539-16629)*2%			(TO record the lease revenue)
	Lease payable	$16,443		(18000-1557)
	Cash		$18,000			31-12-18	Depreciation	$     10,600
							To Accumulated depreciation		$     10,600
30-06-18	Amortization expense	$16,443					(To record the dep expense)
	Right of use equipment		$16,443
					Period	PVF @ 2%
					1	0.9804
					2	0.9612
					3	0.9423
					4	0.9238
					Total	3.8077