Question

Please help on number 3 journal entry for interest expense and lease payable!!!

Natick Industries leased high-tech instruments from Framingham Leasing on January 1, 2021. Natick has the option to renew the lease at the end of two years for an additional three years. Natick is subject to a $60.000 penalty after two years if it fails to renew the lease Framingham Leasing purchased the equipment from Waltham Machines at a cost of $444,390 (EV of $1. PV of $1. EVA of $1. PVA of $1. FVAD of S1 and PVAD of $1 (Use appropriate factor(s) from the tables provided.) Related Information: Lease ter Lease renewal option for an additional Quarterly lease payments Economic life of asset Interest rate charged by the lessor 2 years (8 quarterly periods) 3 years (12 quarterly periods) $29,000 at Jan 1, 2021, and at Mar. 31, June 30, Sept. 30, and Dec. 31 thereafter. 5 years 123 Required: Prepare appropriate entries for Natick Industries from the beginning of the lease through March 31, 2021. Appropriate adjusting entries are made quarterly. (If no entry is required for a transaction/event, select "No journal entry required in the first account field. Round your intermediate calculations and final answers to the nearest whole dollar.)

Answer 1

Journal Entries:

No	Date	General Journal	Debit	Credit
1	January 01,2021	Right-of-use asset	444,390
		Lease payable		444,390
		[To record lease liability]
2	January 01,2021	Lease payable	29,000
		Cash		29,000
		[To record payment of lease]
3	March 31,2021	Interest expense	12,462
		Lease payable	16,538
		Cash		29,000
		[To record payment of lease]
4	March 31,202	Amortization expense [444,390/20 payments]	22,220
		Right-of-use asset		22,220
		[To record amortization expense]

Calculations:

For March 31,2021

i.Interest expense = Carrying value on Mar 31,2021 x Interest rate

= (444,390 - 29,000) x 12% x (1/4)

= 415,390 x 12% x 1/4

= 49,847 x 1/4

= 12,462

ii. Lease liability = Cash paid - interest expense

= 29,000 - 12,462

= 16,538