On January 1, 2013, Holbrook Company leased a building under a three-year operat

Question

On January 1, 2013, Holbrook Company leased a building under a three-year operating lease from Thornhill Companies. The annual rental payments are $40,000 on January 1, 2013; $30,000 on January 1, 2014; and $20,000 on January 1, 2015. Prepare journal entries for Holbrook Company for each year, including any necessary adjusting journal entries. Prepare journal entries for Thornhill Companies for each year, including any necessary adjusting journal entries. On June 30, 2013, Blue, Inc., leased a machine from Big Leasing Corporation. The lease agreement qualifies as a capital lease and calls for Blue to make semiannual lease payments of $281,454 over a three-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2013. Blue's incremental borrowing rate is 10%, the same rate Big uses to calculate lease payment amounts. Depreciation is recorded on a straight-line basis at the end of each fiscal year.

Explanation / Answer

1)   in books of Holbrook company

1.january,2013 Rental expense Dr.$40000

To cash 40000

1 january,2014    Rental expense Dr.$30000

To cash 30000

1.january,2015    Rental expense Dr.$20000

To cash 20000

in books of Thornhill company:

1.january,2013 cash Dr.$40000

To Rental income 40000

1.january 2014 cash Dr.$30000

To Rental income 30000

1.january,2015 cash Dr.$20000

To Rental income 20000

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