Question

hi there

just need to know what journal entries to record for commencement of lease, payment of first lease installment, interest expense, depr expense, payment of second lease installment,interest expense, depr expense

On 31 December 20X0, Columbia Inc. entered into an agreement with Scotia Ltd. to lease equipment with a useful life of 6 years. Columbia Inc. will make four equal payments of $115,000 at the beginning of each lease year. Columbia Inc. anticipates that the equipment will have a residual value of $94.400 at the end of the lease, net of removal costs. Columbia Inc. has the option of extending the lease by (1) paying $94,400 to retain the equipment or (2) allowing Scotia Ltd. to remove it. Scotia Ltd's implicit interest rate in this lease is 7% Columbia Inc's incremental borrowing rate is 8% Columbia Inc. depreciates the leased equipment on a straight-line basis. The lease commences on 1 January 20X1. Assume that the fair value of the equipment o the open market is greater than the present value of the lease payments. (PV of $1. PVA of $1, and PVAD of $1) (Use appropriate factor(s) from the tobles provided.) Required: 1. Prepare a lease liability amortization table for this lease for Columbia Inc. (Round your final answers to the nearest whole dollar amount. Leave no cell blank. Be certain to enter "O" wherever required.) Amortization Table Net Lease Payment Beg. of Year Beginning Balance Incri(Decr) in Balance Lease Period Interest Ending Balance 416.796 301.796 20X1 115 000S 115,000 115,000 10 (115.000) 301.796) 20X2 21.126 207,922 (93,874) 20X3 207 922 14,555 (100 445) 107 477 20X4 107.477 7 523 115.000 (107 477) 0

Answer 1

1. For commencement of lease:

• Right of use asset Dr 416796
• To Lease liability a/c 416796

2. For first lease payment:

• Lease liability a/c Dr 115000
• To Cash 115000

3.For interest and payment of second payment:

• Lease liability Dr 93874
• Interest expense Dr 21126
• To Cash 115000

4. For Depreciation:

• Depreciation Expense a/c(416796/4) Dr 104199
• To right of use equipment 104199

5.For interest third lease payment:

• Lease liability a/c Dr 100455
• Interest expense Dr 14555
• To Cash a/c 115000

6. Depreciation:

• Depreciation Expense a/c dr 104199
• To Right of use asset 104199

If Fair value is greater than the PV of lease rentals, then the difference shall be paid by the lessee in cash. The entry is:

• Right of use asset Dr
• To Lease liability
• To cash a/c

Please comment in case of any query regarding the solution.