On July 1, Pine Region Dairy leased equipment from Farm America for a period of

Question

On July 1, Pine Region Dairy leased equipment from Farm America for a period of three years. The lease calls for monthly payments of $2,500 payable in advance on the first day of each month, beginning July 1.

Prepare the journal entry needed to record this lease in the accounting records of Pine Region Dairy on July 1 under each of the following independent assumptions:

The lease represents a simple rental arrangement. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

(record the lease on July 1)

At the end of three years, title to this equipment will be transferred to Pine Region Dairy at no additional cost. The present value of the 36 monthly lease payments is $76,021, of which $2,500 is paid in cash on July 1. None of the initial $2,500 is allocated to interest expense. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

(record the lease on july 1)

On July 1, Pine Region Dairy leased equipment from Farm America for a period of three years. The lease calls for monthly payments of $2,500 payable in advance on the first day of each month, beginning July 1.

Explanation / Answer

1. Journal entry in the book of Pine Region Dairy ( Lessee) on 1st july ( assuming normal and operating lease)

Rental Expenses A/c Dr. $2,500

Cash A/c Cr  $2,500

2 Journal entry in the book of Pine Region Dairy ( Lessee) on 1st july ( assuming financial lease)

A)

Equipment A/c Dr. $76,021

Lease Obligation A/c Cr  $76,021

B)

Lease Obligation A/c Dr $2,500

Cash A/c Cr.$2,500

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