Question

On January 1, 2021, Winn Heat Transfer leased office space under a three-year operating lease agreement. The arrangement specified three annual lease payments of $102,000 each, beginning December 31, 2021, and at each December 31 through 2023. The lessor, HVAC Leasing calculates lease payments based on an annual interest rate of 8%. Winn also paid a $276,000 advance payment at the beginning of the lease. With permission of the owner, Winn made structural modifications to the building before occupying the space at a cost of $378,000. The useful life of the building and the structural modifications were estimated to be 30 years with no residual value. (EV of $1. PV of $1. EVA 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 Winn Heat Transfer from the beginning of the lease through the end of 2023. Winn's fiscal year is the calendar year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to nearest whole dollars.) View transaction list Journal entry worksheet 1 2 3 4 5 6 7 8 ..... 11 Record the beginning of the lease for Winn. Note: Enter debits before credits. General Journal Debit Credit Date January 01 2021

Answer 1

Answer :

Lease is a contract made to transfer the resource for a specific purpose or reason at a stipulated time. Below are the entries to record the Winn Heart Transfer:

Journal Entry

Date	Account Titles & Explanation	Debit	Credit
2021
Jan-01	Right of use asset	538864
	Lease Payable		538864
Record the beginning of the lease for Winn
Jan-01	Prepaid Rent	276000
	Cash		276000
Record the entry for advance lease payment
Dec-31	Interest Expense	$21,029
	Lease Payable	$80,971
	Cash		$102,000
Record the lease payment.
Dec-31	Amortization Expense	$172,971
	Right of use asset		$172,971
to record the amortization expense
Dec-31	Depreciation expense	$126,000
	Accumulated Depriciation		$126,000
Record the depreciation expense
2022
Dec-31	Interest Expense	$14,551
	Lease Payable	$87,449
	Cash		$102,000
To record the lease payment
Dec-31	Amortization Expense	$179,449
	Right of use asset		$179,449
To record the amortization expense
Dec-31	Depreciation expense	$126,000
	Accumulated Depriciation		$126,000
Record the depreciation expense
2023
Dec-31	Interest Expense	$7,556
	Lease Payable	$94,444
	Cash		$102,000
To record the lease payment
Dec-31	Amortization Expense	$186,444
	Right of use asset		$186,444
To record the amortization expense
Dec-31	Depreciation expense	$126,000
	Accumulated Depriciation		$126,000
Record the depreciation expense

Calculation :

Entry #1:

Right Value of use asset = Advance payment +Lease rental*PV(rate,nper,pmt)

= 276,000+102,000 * 2.58 = 538,864

Entry #3:

Interest Expense = 8% * 538,864 - 276,000 = 21,029

Entry #4:

Amortization Expense

Straight-line lease expense = 276,000/3 +102000 - 21,029 = 172,971

Entry #5: (Same throughout 3 years)

Depreciation expense = 378,000/3 = 126,000

Entry #6:

Interest Expense = (538,864 - 276,000 - 80,971)* 8% = 14,551

Entry #7:

Amortization Expense

Straight-line lease expense = 276,000/3 +102000 - 14,551= 179,449

Entry #9:

Interest Expense = (538,864 - 276,000 - 80,971 - 87,449)* 8% = 7,556

Entry #10

Amortization Expense

Straight-line lease expense = 276,000/3 +102000 - 7,556 = 186,444