Question

on January 1, 2021, 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 $10,500 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $91,000 and were expected to have a useful life of five years with no residual value. Both firms record amortization and depreciation semiannually. (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: 1. Prepare appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease. 2. Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first year of the lease.

Answer 1

Answer:

Lease Payable = Lease Rent x FV factor = $ 10,500 * 3.80773 = $ 39,981

Present value of Annuity , N= 4 payments , i= 2 % semiannually is 3.80773

1 ) Journal Entries In the Books of Nath Langstrom Services Nc.( Lessee)
Date	General Journal	Debit ($)	Credit ($)
Jan 1, 2021	Right of use asset	39,981
	To Lease payable		39,981
	(To record Right of use assets at beginning )
Jun 30, 2021	Interest expense( 39,981 x 2%) = 799.62	799.62
	Lease payable ( 10,500 – 799.62)	9,700.38
	To Cash		10,500
	(To record lease payment )
Jun 30, 2021	Amortization expense	9,700.38
	To Right of use asset		9,700.38
	(To record Amortization expense )
Dec 31, 2021	Interest expense ((39,981 – 9,700.38) x 2%)	605.61
	Lease payable ( 10,500 – 605.61)	9,894.39
	To Cash		10,500
	(To record lease payment )
Dec 31, 2021	Amortization expense	9,894.39
	To Right of use asset		9,894.39
	(To record Amortization expense )

Note – Amortization Table:

Date	Payment	Interest @2%	Principal amount	Closing Balance
1/1/2021	-	-	-	39,981
30/06/2021	10,500	799.62	9,700.38	30,280.62
31/12/2021	10,500	605.61	9,894.39	20,386.23
30/06/2022	10,500	407.73	10,092.27	10,293.96
31/12/2022	10,500	205.88	10,294.12	0

2) Journal Entries In the Books of Computerworld Leasing (Lessor)
Date	General Journal	Debit ($)	Credit ($)
Jan 1, 2021
	No Journal Entry
Jun 30, 2021	Cash	10,500
	To Lease Revenue		10,500
	(To record cash received for lease )
Jun 30, 2021	Depreciation expense ((91,000/ 5 years )x 6/12 months)	9,100
	To Accumulated Depreciation		9,100
	(To record Depreciation expense for 6 Months )
Dec 31, 2021	Cash	10,500
	To Lease Revenue		10,500
	(To record cash received for lease )
Dec 31, 2021	Depreciation expense ((91,000/ 5 years )x 6/12 months)	9,100
	To Accumulated Depreciation		9,100
	(To record Depreciation expense for 6 Months )