On January 1, 2015, Hester Co. leases 8 trucks from a fleet leasing company. The

Question

On January 1, 2015, Hester Co. leases 8 trucks from a fleet leasing company. The trucks have an estimated useful life of 10 years. 4 of the trucks have a fair market value or $50,000, lease term 60 months, quarterly payments $950. 4 have a fair market value of $85,000, lease term 96 months, and quarterly payments of $1,200. Hester’s cost of borrowing is 12%. The rate imputed in the lease is 9% and Hestler knows this rate. Payments are due the beginning of the month and the trucks revert to the leasing company at the end of the lease term. Prepare all of Hester's entries for 2015

Explanation / Answer

Hester's entries for 2015 are shown as under:

Date Particulars L.F Amount ($) Amount ($) 2015 Jan-01 Leased Truck 1,35,000    Lease Liability 1,35,000 (For 8 trucks taken on lease) Apr-01 Lease liability 2,150    Cash 2,150 (For quarterly instalement paid) Jul-01 Lease liability 2,150    Cash 2,150 (For quarterly instalement paid) Oct-01 Lease liability 2,150    Cash 2,150 (For quarterly instalement paid) Dec-31 Depreciation expense 13,500    Accumulated dep-Trucks 13,500 (For depreciation on truck recorded) 135,000/10 Dec-31 Interest expense 10,935    Interest payable 10,935 (For interest due)

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