Scape Corp. manufactures telephony equipment. Scape leased equipment to User, In

Question

Scape Corp. manufactures telephony equipment. Scape leased equipment to User, Inc., on January 1, 2016. Scape produced the equipment at a cost of $6,000,000.

Collectibility of the rental payments is reasonably assured, and there are no lessor costs yet to be incurred.

Prepare appropriate entries for both User and Scape from the inception of the lease through the second rental payment on April 1, 2016. Depreciation is recorded at the end of each fiscal year (December 31). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

     

Scape Corp. manufactures telephony equipment. Scape leased equipment to User, Inc., on January 1, 2016. Scape produced the equipment at a cost of $6,000,000.

Explanation / Answer

Value of leased asset = Rental Payment x PVAD8%,24

= $466510 x 11.37106

= $5304713

Journal in the books of User (Lessee)

Journal in the books of Scape (Lessor)

Date Account Name Debit Credit Jan 1, 2016 Equipment on lease $5304713 Lease liability $5304713 (To record equipment taken on lease) Jan 1, 2016 Lease liability 466510 Cash 466510 (To record quarterly rental payment) Apr 1, 2016 Lease liability 79454 Interest expense ($4838203 x 8%) 387056 Cash 466510 (To record quarterly rental payment)

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