The following relate to an operating lease agreement a The lease term is 3 years

Question

The following relate to an operating lease agreement a The lease term is 3 years, beginning January 1, 2018 b. The leased asset cost the lessor $860,000 and had a useful life of eight years with no residual value. The lessor uses straight-line depreciation for its depreciable assets. c Annual lease payments at the beginning of each year were $146,000. d. Incremental costs of negotiating costs of negotiating and consummating the completed lease transaction incurred by the lessor were $3,300. Required Prepare the appropriate entries for the lessor from the beginning of the lease through the end of the lease term. (Round your Intermediate and final answers to the nearest whole dollar amount. If no entry Is required for a transaction/event, select "No journal entry required" in the first account fleld.) ew transaction st Journal entry worksheet 13 Record the cash received Note Enter debits before crecits Date Debit Credit

Explanation / Answer

Solution:

Working Note:

Calculation of Depreciation Expense:

Leased asset cost = 860,000

Useful life = 8 Years

Depreciation expense per annum = 860,000 / 8 Years = 107,500

Calculation of Lease Expense:

Lease expense = 3,300

Lease term = 3 Years

Lease expense per annum = 3,300 / 3 Years = 1,100

The below are the journal entries for the lessor from the beginning of the lease through the end of the lease term:

Date General Journal Debit Credit January 1, 2018 Cash    146,000 Deferred rent revenue      14,600 January 1, 2018 Deferred initial direct cost        3,300 Cash         3,300 December 31, 2018 Lease expense        1,100 Deferred initial direct cost         1,100 December 31, 2018 Depreciation expense    107,500 Accumulated depreciation    107,500 December 31, 2018 Deferred rent revenue    146,000 Rent revenue    146,000 January 1, 2019 Cash    146,000 Deferred rent revenue      14,600 December 31, 2019 Lease expense        1,100 Deferred initial direct cost         1,100 December 31, 2019 Depreciation expense    107,500 Accumulated depreciation    107,500 December 31, 2019 Deferred rent revenue    146,000 Rent revenue    146,000 January 1, 2020 Cash    146,000 Deferred rent revenue      14,600 December 31, 2020 Lease expense        1,100 Deferred initial direct cost         1,100 December 31, 2020 Depreciation expense    107,500 Accumulated depreciation    107,500 December 31, 2020 Deferred rent revenue    146,000 Rent revenue    146,000

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