Question

The following relate to an operating lease agreement: a. The lease term is 3 years, beginning January 1, 2018. b. The leased asset cost the lessor $760,000 and had a useful life of eight years with no residual value. The lessor uses straight-lir depreciation for its depreciable assets. c. Annual lease payments at the beginning of each year were $134,500. d. Incremental costs of negotiating costs of negotiating and consummating the completed lease transaction incurred by the lessor were $4,950. Required: Prepare the appropriate entries for the lessor from the beginning of the lease through the end of the lease term. (Round your Intermediate and final answers to the nearest whole dollar amount. If no entry is required for a transaction/event, select "No Journal entry required" in the first account field.) View transaction list 1 Record the cash received 2 Record the payment of initial direct costs. 3 Record the cost of the lease. 4 Record the depreciation expense. 5 Record the rent revenue. Credit 6 Record the cash received < Prey 3 of 4 !!! Next >

Answer 1

Calculation of Depreciation Expense:

Leased asset cost = 760000

Useful life = 8 Years

Depreciation expense per annum = 760,000 / 8 Years = 95,000

Calculation of Lease Expense:

Lease expense = 4950

Lease term = 3 Years

Lease expense per annum = 4950 / 3 Years = 1,650

The below are the journal entries for the lessor from the beginning of the lease through the end of the lease term:

Date	General Journal	Debit	Credit
January 1, 2018	Cash	134500
	Deferred rent revenue		134500
January 1, 2018	Deferred initial direct cost	4950
	Cash		4950
December 31, 2018	Lease expense	1,650
	Deferred initial direct cost		1,650
December 31, 2018	Depreciation expense	95,000
	Accumulated depreciation		95,000
December 31, 2018	Deferred rent revenue	134500
	Rent revenue		134500
January 1, 2019	Cash	134500
	Deferred rent revenue		134500
December 31, 2019	Lease expense	1,650
	Deferred initial direct cost		1,650
December 31, 2019	Depreciation expense	95,000
	Accumulated depreciation		95,000
December 31, 2019	Deferred rent revenue	134500
	Rent revenue		134500
January 1, 2020	Cash	134500
	Deferred rent revenue		134500
December 31, 2020	Lease expense	1,650
	Deferred initial direct cost		1,650
December 31, 2020	Depreciation expense	95,000
	Accumulated depreciation		95,000
December 31, 2020	Deferred rent revenue	134500
	Rent revenue		134500