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 $10,000 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $90,000 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.)

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.

Journal entry worksheet 2 3 4 5 Record the beginning of the lease for Nath-Langstrom Services. Note: Enter debits before credits. General Journal Debit Credit Date January 01, 2021

Answer 1

	Computation of Present Value of Lease
	Half yearly Payments*PVAF @2%, for 4 period) ($10000*3.80773)	$38,077
Journal Entries in the books of Nath-Langstrom Services, Inc.
Date	Account Tittle & Explanation	Debit	Credit
1-Jan-21	Right of use asset	$38,077.00
	Lease Payable		$38,077.00
	record Lease Asset
30-Jun-21	Interest Expense( 38077*2%)	$761.54
	Lease Payable (BF)	$9,238.46
	Cash		$10,000.00
	record lease payment
30-Jun-21	Amortization Expense	$9,238.46
	Right of use asset		$9,238.46
	record amortization Expense
31-Dec-21	Interest Expense [($38077 - $9238)*2%]	$576.78
	Lease Payable (BF)	$9,423.22
	Cash		$10,000.00
	( record lease payment)
31-Dec-21	Amortization Expense	$9,423.22
	Right of use asset		$9,423.22
	record amortization Expense
Journal Entries in the books of Computer World Leasing
Date	Account Tittle & Explanation	Debit	Credit
30-Jun-21	Cash	$10,000.00
	Lease revenue		$10,000.00
	record lease payment
30-Jun-21	Depreciation Expense ($90,000/10)	$9,000.00
	Accumulated depreciation		$9,000.00
	Record Dep
31-Dec-21	Cash	$10,000.00
	Lease revenue		$10,000.00
	record lease payment
31-Dec-21	Depreciation Expense ($90,000/10)	$9,000.00
	Accumulated depreciation		$9,000.00
	( record depreciation)
	record lease payment