Question

Natick Industries leased high-tech instruments from Framingham Leasing on January 1, 2021. Natick has the option to renew the lease at the end of two years for an additional three years. Natick is subject to a $55,000 penalty after two years if it fails to renew the lease. Framingham Leasing purchased the equipment from Waltham Machines at a cost of $199,209. (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 Intermediate Accounting Tenth Edition table.)

Related Information:
Lease term	2 years (8 quarterly periods)
Lease renewal option for an additional	3 years (12 quarterly periods)
Quarterly lease payments	$13,000 at Jan. 1, 2021, and at Mar. 31, June 30, Sept. 30, and Dec. 31 thereafter.
Economic life of asset	5 years
Interest rate charged by the lessor	12%

Required:
Prepare appropriate entries for Natick Industries from the beginning of the lease through March 31, 2021. Appropriate adjusting entries are made quarterly. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate calculations and final answers to the nearest whole dollar.)
  

Answer 1

| Answer: Jan 1,2021 iz let 3% a) Right of use asset =$199,209 I na 5x4=20 Right of use asset = 13000 x PVAF (3%,20) = 13000x (1-C1+0.0320 L 0.031+0.03) | X 15.3238 $199,209 Lease payable = $13,000 Con Mar 31, 2021 Interest expense = (199,209-13000) *3% -$5586.27 $5586 (d) Amortization expense = $199, 20/20 =$9960.45 ~$9960 Date particulars Debit I credit Jaw! a Right of use asset Ale dr $ 199,209 & 199,209 to lease payable J0м 1 Lease payable Ale dr $13,000 2021 - to cash $ 13000 Mar 31 C) Interest expense Ale dr $5586 2021 | Lease payable (13000- 558687414 - To cash Mar 31 (6) Amortization expende Ale dr $9960 $9960 2021 I to right of use asset 2021 |$13000