Question

On January, 1, 2018, Nath-Langstorm services, inc, a computer software training firm, leased several customers under a 2 year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an anuual interest rate of 4%. The contract calls for 4 rent payemnts of 16,500.00 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-annully. (use appropriate charts). Prepare the appropriate entries for both the leasee and the lessor from the beginning of the lease through the end of 2018.

1. Record the beginning of the lease for Nath-Langstorm

2.Record the lease payment and interest expense for Nath

3. Record the amortization expense for Nath

4. Record the lease payment and interest expense for Nath

5. Record the amortization expense for Nath

6. Record the lease revenue received by computerworld

7. Record the deprecation expense for computerworld

8 Record the lease revenue received by computerworld

9. Record the depreciation expense for Computerworld

Answer 1

Solution

Journal Entries in the books of both the lessee and lessor:

Date	Account Titles and Explanation		Debit	Credit
1. Beginning of lease for Nath-Langstorm:
NO -Entry
Explanation - Under operating lease, lessee does not record lease liability)
2. Lease payment and lease interest expense for Nath:
30-Jun-18	Rent Expense		$16,500
	Cash			$16,500
	(To record rent expense)
3. Amortization expense for Nath:
NO -Entry
Explanation - Under operating lease, lessee does not record depreciation or amortization expense)
4. Lease payment and lease interest expense for Nath:
31-Dec-18	Rent Expense		$16,500
	Cash			$16,500
	(To record rent expense)
5. Amortization expense for Nath:
NO -Entry
Explanation - Under operating lease, lessee does not record depreciation or amortization expense)
6. Lease revenue received by Computerworld:
30-Jun-18	Cash		$16,500
	Rent Revenue			$16,500
	(To record rent revenue received)
31-Dec-18	Cash		$16,500
	Rent Revenue			$16,500
	(To record rent revenue received)
31-Dec-18	Depreciation Expense		$20,600
	Accumulated Depreciation			$20,600
	(To record depreciation expense, $103,000/5 years = $20,600 for the year 2018)

Notes:

Point 8 entry is shown under the 6, - Debit $16,500 Cash to Credit $16,500 Rent Revenue.

Point 9 entry – no additional depreciation expense entry is needed as the depreciation expense is provided annually at December 31, and the same is already recorded.