On January 1, 2014, HighFiber Company leased several machines from Fortwine Comp

Question

On January 1, 2014, HighFiber Company leased several machines from Fortwine Company under a three-year operating lease agreement. The lease calls for semiannual payments of $15,000 each, payable on June 30 and December 31 of each year. The machines were acquired by Fortwine at a cost of $90,000 and are expected to have a useful life of five years with no expected residual value.

Required: Prepare the appropriate journal entries for the lessee from the inception of the lease through the end of 2014.

Explanation / Answer

In the books of Lessee: Date Account Title Debit Credit Jan.1,2014 Under operating lease no entry is required at the start of the lease Jun.30,2014 Lease Rental Expense 15000 Cash 15000 (First semiannual lease rental paid ) Dec.31,2014 Lease Rental Expense 15000 Cash 15000 (Second semiannual lease rental paid )

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