Question

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 $15,500 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $101,000 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

Answer 1

Solution:

Journal Entries - Nath-Langstrom Services, Inc.
Date	Particulars	Debit	Credit
1-Jan-18	Right of use asset Dr	$59,020.00
	To Lease Payable ($15,500 * 3.80773)		$59,020.00
	(To record right of use assets on lease)
30-Jun-18	Interest Expense Dr ($59,020*2%)	$1,180.00
	Lease Payable Dr	$14,320.00
	To Cash		$15,500.00
	(To record lease payment)
30-Jun-18	Amortization Expense Dr	$14,320.00
	To Right of use asset		$14,320.00
	(To record amortization of asset)
31-Dec-18	Interest Expense Dr [($59,020 - $14,320)*2%]	$894.00
	Lease Payable Dr	$14,606.00
	To Cash		$15,500.00
	(To record lease payment)
31-Dec-18	Amortization Expense Dr	$14,606.00
	To Right of use asset		$14,606.00
	(To record amortization of asset)

Journal Entries - ComputerWorld Leasing
Date	Particulars	Debit	Credit
30-Jun-18	Cash Dr	$15,500.00
	To Lease revenue		$15,500.00
	(To record lease revenue)
30-Jun-18	Depreciation Expense Dr ($101,000/10)	$10,100.00
	To Accumulated depreciation		$10,100.00
	(To record depreciation)
31-Dec-18	Cash Dr	$15,500.00
	To Lease revenue		$15,500.00
	(To record lease revenue)
31-Dec-18	Depreciation Expense Dr ($101,000/10)	$10,100.00
	To Accumulated depreciation		$10,100.00
	(To record depreciation)