Question

On January 1, 2018, 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 6%. The contract calls for four rent payments of $14,000 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $98,000 and were expected to have a useful life of Seven years with no residual value. Both firms record amortization and depreciation semi-annually. (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:
Prepare the appropriate entries for both the lessee and the lessor from the beginning of the lease through the end of 2018

Jan 1, 2018: Record the beginning of the lease for Nath-Langstrom Services.

June 30, 2018: Record the lease payment and interest expense for Nath-Langstrom Services.

June 30, 2018: Record the amortization expense for Nath-Langstrom Services.

December 31, 2018: Record the lease payment and interest expense for Nath-Langstrom Services.

December 31, 2018: Record the amortization expense for Nath-Langstrom Services.

June 30, 2018: Record the lease revenue received by ComputerWorld Leasing.

June 30, 2018: Record the Depreciation expense for ComputerWorld Leasing.

December 31, 2018: Record the lease revenue received by ComputerWorld Leasing.

December 31, 2018: Record the Depreciation expense for ComputerWorld Leasing

Answer 1

Present value = $ 14,000 * FVIFA (3%, 4 yrs)

= $14,000 * 3.717

= $ 52,039

Journal Entries

1. January 1, 2018

Office Equipment Dr. 52,039

To Lease Payable 52,039

2. June 30, 2018

Interest expenses Dr. $ 1561 ($ 52,039 * 6% *6/12)

Lease Payable Dr $ 12,439.{14000 - 1561}

To Cash $ 14,000

3. June 30, 2018

Amortization expenses Dr. 12,439

To Office Equipment 12,439

4. December 31, 2018

Interest expenses A/c Dr. 1188 {(52039 - 12439) * 6% * 6/12}

Lease Payable A/c Dr. 12812 {14000 - 1188}

To Cash 14,000

5. December 31, 2018

Amortization expenses A.c Dr. 12812

To office equipment 12812

6. June 30, 2018

Cash A/c Dr. 14,000

To Lease revenue

7. June 30, 2018

Depreciation expenses A/c Dr. 7000 {98000/7 *6/12}

To accumulated depreciation 7000

8. December 31, 2018

Cash A/c Dr. 14000

To lease revenue 14000

9. December 31, 2018

Depreciation expenses A/c Dr. 7000 {98000/7 *6/12}

To accumulated depreciation 7000