Question

Sunland Warehouse Corporation recorded a right-of-use asset for $240,000 as a result of a finance lease on December 31, 2016. Sunland Warehouse’s incremental borrowing rate is 7%, and the implicit rate of the lessor was not known at the commencement of the lease. Sunland Warehouse Corporation made the first lease payment of $54,700 on December 31, 2016. The lease requires 5 annual payments. The equipment has a useful life of 5 years with no residual value.

Prepare Sunland Warehouse Corporation’s December 31, 2017 adjusting entries.

Answer 1

Solution:

Journal Entries - Sunland Warehouse Corporation
Date	Particulars	Debit	Credit
31-Dec-17	Interest expense Dr [(240,000-$54,700)*7%]	$12,971.00
	Lease Payable Dr	$41,729.00
	To Cash		$54,700.00
	(To record lease payment)
31-Dec-17	Depreciation expense Dr	$48,000.00
	To Accumulated Depreciation		$48,000.00
	(To record depreciation expense)