On January 1, 2018, Nath-Langstrom Services, Inc., a computer software training
ID: 2340151 • Letter: O
Question
On January 1, 2018, Nath-Langstrom Services, Inc., a computer software training firm, leased several computers under a two-year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 4%. The contract calls for four rent payments of $16,500 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $103,000 and were expected to have a useful life of Five years with no residual value. Both firms record amortization and depreciation semi-annually. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: Prepare the appropriate entries for both the lessee and the lessor from the beginning of the lease through the end of 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate calculations to the nearest whole dollar amount.)
Explanation / Answer
FACTS Lease a computer worth $103,000.00 Lease term 2 yrs Annual payment 54,610 Estimated life of a computer 5 yrs Effective borrowing rate 4% PRESENT VALUE OF PAYMENTS $103,000 ANNUAL DEPRECIATION $20,600 CAPITAL LEASE OPENING YEAR ONE YEAR TWO YEAR THREE YEAR FOUR Equipment 103,000 Cap lease obligation 103,000 Cash 54,610 54,610 54,610 Interest expense 4,120 2,100 (0) (2,184) Capital lease obligation 50,490 52,510 54,610 2,184 Depreciation expense 25,750 25,750 25,750 25,750 Accumulated depreciation 25,750 25,750 25,750 25,750 OPERATING LEASE Rent expense NO OPENING ENTRY! 54,610 54,610 54,610 Cash 54,610 54,610 54,610 COMPARE EXPENSE OF THE TWO: CAPITAL LEASE OPERATING LEASE Interest expense 4,036 Rent expense 163,831 Depreciation expense 103,000 107,036 DIFFERENCE BETWEEN THE TWO OVERALL: NONE!!!!