Part VI: Lessee and Lessor on January 1, 2019 enter into a 4-year non-cancelable lease, with...

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Part VI: Lessee and Lessor on January 1, 2019 enter into a 4-year non-cancelable lease, with two renewal options of one year

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Answer 1

Answer #1

What kind of lease is this to the lessee and lessor?

Ans : It is a finance lease because the risks and rewards inherent in the assets are transferred to the lessee.

Prepare the journal entries on the books of Lesse and Lessor through December 31, 2024 ?

Ans : Accounting of Lessor

Journal entries posted at the start of the lease contract

Particulars Debit Credit

Lease Receivable (dr) 114052

To Assets (cr) 114052

At the time of first payment

Cash Account (dr) 20000

To Lease receivable 19000

To Finance income (5%) 1000

Accounting for Lessee

Leased asset (dr) 114052

To Lease liability (cr) 114052

Lease liability (Dr) 19000

Interest expenses (Dr) 1000

To Cash 20000

Prepare the journal entries on the books of Lesse and Lessor through December 31, 2024, assuming that the residual value is unguaranteed.

Ans : Journal entries posted at the start of the lease contract

Particulars Debit Credit

Lease Receivable (dr) 114052

To Assets (cr) 114052

At the time of first payment

Cash Account (dr) 20000

To Lease receivable 19000

To Finance income (5%) 1000

Accounting for Lessee

Leased asset (dr) 114052

To Lease liability (cr) 114052

Lease liability (Dr) 19000

Interest expenses (Dr) 1000

To Cash 20000

What if there is a bargain purchase option of $ 10000 at the end of the lease.

Journal entries posted at the start of the lease contract

Particulars Debit Credit

Lease Receivable (dr) 224052

To Assets (cr) 224052

At the time of first payment

Cash Account (dr) 20000

To Lease receivable 19000

To Finance income (5%) 1000

Accounting for Lessee

Leased asset (dr) 224052

To Lease liability (cr) 224052

Lease liability (Dr) 19000

Interest expenses (Dr) 1000

To Cash 20000

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