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 $19,500 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by Computerworld at a cost of $109,000 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.) aber daya 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

1. Journal Entries for Nath-Langstorm Services for the first year of the lease.
Date	Particulars	Debit ($)	Credit ($)
2021
Jan. 1	Right-of-Use Asset	$74,251
	Lease Payable		$74,251
	(Explanation #1)
Jun. 30	Interest Expense	$1,485
	Lease Payable	$18,015
	Cash		$19,500
	(Explanation #2)
Jun. 30	Amortization Expense	$18,015
	Right-of-Use Asset		$18,015
Dec. 31	Interest Expense	$1,125
	Lease Payable	$18,375
	Cash		$19,500
	(Explanation #3)
Dec. 31	Amortization Expense	$18,375
	Right-of-Use Asset		$18,375
Explanation #1
Present Value of Lease Payments = Lease Payment * PVAF(n=4,i=2%)
Present Value of Lease Payments = $19,500 * 3.80773
Present Value of Lease Payments = $ 74,251
Explanation #2
Interest Expense = $74,251 * 2% = $1,485
Lease Payable = $19,500 - $1,485 = $ 18,015
Explanation #3
Interest Expense = {$74,251 - $18,015} * 2% = $1,125
Lease Payable = $19,500 - $1,125 = $ 18,375
2. Journal Entries for Computer World Leasing for the first year of the lease.
Date	Particulars	Debit ($)	Credit ($)
2021
Jun. 30	Cash	$19,500
	Lease Revenue		$19,500
Jun. 30	Depreciation Expense	$10,900
	Accumulated Depreciation		$10,900
	($109,000 / 5 years * 6/12)
Dec. 31	Cash	$19,500
	Lease Revenue		$19,500
Dec. 31	Depreciation Expense	$10,900
	Accumulated Depreciation		$10,900
	($109,000 / 5 years * 6/12)