Question

On January 1, 2023, SBI leased several items of equipment under a two-year operating lease agreement from Pharmacy, which routinely finances equipment for other firms at an annual interest rate of 4%. The contract calls for four rent payments of $44,000 each, payable semiannually on June 30 and December 31 of each year. The equipment was acquired by Pharmacy at a cost of $364,000 and was expected to have a useful life of 5 years with no residual value. Both SBI and Pharmacy record amortization and depreciation semiannually. Required: Prepare the appropriate journal entries for the lessee from the beginning of the lease through the end of 2023.

Answer 1

Journal entries are atached below. Please refer

Thanks.

Opesating Lease In the books of Lessoe [ Pharmacy) Lease payments (excluding costs for Souces such as insurance and maintainen)_condes an oposaling lease shall be recognised as an - expense on" Straight line melted" even it payment cene are not on that basis In the case payment are done on see equal_basis. Hence "Straight line method to followed Credit ($) Journal Entries In_books of Pharmacy Date Particulars Debit ($) Jeen 30 Operating lease rental 2003 y expenses De 4.4000 To cash/bank сть нo codlеаѕо rental payment Semi- annually) 44000 49000 Dec 3y Operating lease Frontal exp 44000 2073 To cast/bank IS To record lease rental payments semi-adually]

Date 120 In the books of lesson ISBI) a Lease focome from operating leases (excluding amount for Segvices such as maintainance & Insurance shall be grecognised in income on straight- line basis over lease team Leeson ateso held fixed asset Lleased ie Equipment. Hence depreciation also changed on it in the books of SBL T ear Journal Entries bat Particulars Debit Credit Junzo Cast/ Bast are Dr 44000 2003 To operating leare 44000 sontal income are che I to record lease income] Jun 30 Depreciation expense Da 36000. 20237 To Equipment asset 3 6907 [lo record depreciation oo equipment for hely Next Page year] Dec31 Cash Bank an Dr 44000 2023 Tó operating lease 9.4000 - Dental income [To record opora Senlal income] lenge

hec 31 20:23 36400 Depreciation expense 36900 To ecceipment asset [To roond depreciation On equipment for half year]. Calulation of depreciation Depreciation - Equipment cost-Resduct for year in life of asset - Value 364000-0 =72800 pia Depreciation 6months i 12 months i fon half year 3 72860 x = 36400