Question

Newton Labs leased chronometers from Brookline Instruments on January 1, 2021. Brookline Instruments manufactured the chronometers at a cost of $190,000. The chronometers have a fair value of $200,185. Appropriate adjusting entries are made quarterly. (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.)

Related Information: Lease term Quarterly lease payments Economic life of asset Estimated residual value of chronometers at end of lease term Interest rate charged by the lessor 5 years (20 quarterly periods) $ 13,819 at Jan. 1, 2021, and at Mar. 31, June 30, Sept. 30, and Dec. 31 thereafter. 6 years $10,666 16%

Required:
1. Prepare appropriate entries for Newton Labs to record the arrangement at its commencement, January 1, 2021, and on March 31, 2021.
2. Prepare appropriate entries for Brookline Instruments to record the arrangement at its commencement, January 1, 2021, and on March 31, 2021.

Answer 1

Answer-1:

Credit ENTRIES FOR NEWTON LABS No. Date General Journal 1 January. 01, 2021 Right of use asset (13,819*14.13394) Lease payable Debit 195317 195317 13819 January 01, 2021 Lease payable Cash 13819 3 March. 31, 2021 Interest expense Lease payable Cash 7260 6559 13819 4 March. 31, 2021 9766 Amortization expense (195,317/5 * 3/12) Right of use asset 9766

Answer-2:

Date Credit 1 ENTRIES FOR BROOKLINE INSTRUMENTS No. General Journal 1 January. 01, 2021 Lease receivable (195,317 + (10,666*0.45639) Cost of goods sold Sales revenue Equipment Debit 200185 190000 200185 190000 2 13819 January. 01, 2021 Cash Lease receivable 13819 3 March. 31, 2021 13819 Cash Lease receivable Interest income 6364 7455