Question

Problem 1

Hood lease equipment from Ford on January 1, 2019. Ford purchased the equipment from a manufacturer at a cost of$250,000, its fair value. Terms of the lease are as follows:

Lease term 2 years, (8 quarterly periods)

Quarterly payments, $15,000 beginning Jan 1, 2019

Economic life of asset, 5 years

Interest rate charged by lessor, 10%

Required:

Prepare appropriate journal entries for the lessee through December 31, 2019. Appropriate adjusting entries are recorded at the end of the fiscal year.

Answer 1

Journal Entries in the books of Hood Lease Equipment
Date	Account Tittle & Explanation	Debit	Credit
1-Jan-19	Right of use asset	$110,241
	Lease Payable		$110,241
	record Lease Asset
1-Jan-19	Lease Payable	$15,000
	Cash		$15,000
	record lease payment
30-Jun-19	Interest Expense (110241-15000)*2.5%	$2,381
	Lease Payable (BF)	$12,619
	Cash		$15,000
	record lease payment
30-Sep-19	Interest Expense (110241-15000-12619)*2.5%	$2,066
	Lease Payable (BF)	$12,934
	Cash		$15,000
	record lease payment
31-Dec-19	Interest Expense (110241-15000-12934)*2.5%	$2,058
	Lease Payable (BF)	$12,942
	Cash		$15,000
	record lease payment
31-Dec-19	Amortization Expense (110241/2)	$55,121
	Right of use asset		$55,121
	record amortization Expense

Computation of Present Value of Lease
Quaterly Payments*PVAF @2.5%, for 8 period) ($15000*7.34939	$110,241

Answer may be slightly difference due to rounded off of PV factor.