Question
In: Accounting
On 1 July 2020, Brooklyn Ltd (lessor) leased Equipment to New Ltd (lessee). The lease agreement...
On 1 July 2020, Brooklyn Ltd (lessor) leased Equipment to New Ltd (lessee).
The lease agreement contained the following:
|
Annual Lease receivable on 1 July (in advance) |
$50,000 |
|
Lease Receivable on 1 July 2020 – measured at NPV net of initial lease receipts |
$176,992 |
What would be the journal entries on 1 July 2020 for the lessor (Brooklyn Ltd)?
Solutions
Expert Solution
The lessor - Brooklyn Ltd shall make the following entries in his books on 1st July 2020:
|
Journal Entries - in the books of Brooklyn Ltd. |
|||
| Date | Particulars | Debit | Credit |
| July 01 | Lease Receivable - New Ltd. | $ 1,76,992 | |
| Cash or Bank A/c | $ 50,000 | ||
| Leased Equipment A/c | $ 2,26,992 |
For understanding, In the above entry:
Lease receivable has been debited by NPV of the lease receipts (which are already given net of initial receipts of $50,000) - this shows the Net Present Value of total lease rental receivable from the New Ltd. during the tenure of the lease and it will be shown on the assets side of the Lessor's balance.
Cash or Bank A/c has been debited because of the receipt of the advance leased rental at the initiation of the lease.
Leased Equipment A/c has been credited with the complete amount of the lease rental (Initial + NPV) - this is either shown as a reduction of an asset block or as a separate liability in the balance sheet.
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