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 $17,500 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $105,000 and were expected to have a useful life of Six 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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate calculations to the nearest whole dollar amount.)

Answer 1

Present value of an annuity of $1: n = 4, i = 2% is 3.80773
In the books of Nath-Langstrom(Lessee)
Date	Account titles and explanation	Debit	Credit
Jan 1, 2018	Right-of-use asset ($17,500 × 3.80773)	$ 66,635
	Lease payable		$ 66,635
Jun 30, 2018	Interest expense (2% *66,635)	$    1,332.70
	Lease payable	$ 16,167.30
	Cash		$    17,500.00
Jun 30, 2018	Amortization expense ($17,500 -1,332.70)	$ 16,167.30
	Right-of-use asset		$    16,167.30
Dec 31, 2018	Interest expense [2% × ($66,635 - 16,167.30)]	$    1,009.35
	Lease payable	$ 16,490.65
	Cash		$    17,500.00
Dec 31, 2018	Amortization expense ($17,500 - 1,009.35)	$ 16,490.65
	Right-of-use asset		$    16,490.65
In the books of ComputerWorld(Lessor)
Jun 30, 2018	Cash	$ 17,500.00
	Lease Revenue		$    17,500.00
Jun 30, 2018	Depreciation expense (105000/(6*2))	$    8,750.00
	Accumulated depreciation		$      8,750.00
Dec 31, 2018	Cash	$ 17,500.00
	Lease Revenue		$    17,500.00
Dec 31, 2018	Depreciation expense (105000/(6*2))	$    8,750.00
	Accumulated depreciation		$      8,750.00

Amortization schedule
Date	Payments	Effective Interest	Decrease In Balance	Outstanding Balance
		(2% × Outstanding balance)
01-01-2018				$ 66,635.00
6/30/18	17,500.00	1,332.70	16,167.30	50,467.70
12/31/18	17,500.00	1,009.35	16,490.65	33,977.05
6/30/19	17,500.00	679.54	16,820.46	17,156.60
12/31/19	17,500.00	343.13	17,156.87	(0)