On January 1, 2018, Nath-Langstrom Services, Inc., a computer software training

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 4%. The contract calls for four rent payments of $15,500 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $101,000 and were expected to have a useful life of Five 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

Explanation / Answer

Solution:

Journal Entries - Nath-Langstrom Services, Inc. Date Particulars Debit Credit 1-Jan-18 Right of use asset Dr $59,020.00          To Lease Payable ($15,500 * 3.80773) $59,020.00 (To record right of use assets on lease) 30-Jun-18 Interest Expense Dr ($59,020*2%) $1,180.00 Lease Payable Dr $14,320.00          To Cash $15,500.00 (To record lease payment) 30-Jun-18 Amortization Expense Dr $14,320.00          To Right of use asset $14,320.00 (To record amortization of asset) 31-Dec-18 Interest Expense Dr [($59,020 - $14,320)*2%] $894.00 Lease Payable Dr $14,606.00          To Cash $15,500.00 (To record lease payment) 31-Dec-18 Amortization Expense Dr $14,606.00          To Right of use asset $14,606.00 (To record amortization of asset)

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