Question

Chance Enterprises leased equipment from Third Bank Leasing on January 1, 2021. Chance elected the short-term lease option. Appropriate adjusting entries are made annually.

Related Information:
Lease term	1 year (12 monthly periods)
Monthly lease payments	$52,000 at Jan. 1, 2021, through Dec. 1, 2021.
Economic life of asset	5 years
Interest rate charged by the lessor	6%

Required:
Prepare appropriate entries for Chance from the beginning of the lease through April 1, 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to the nearest whole dollar amount.)

Answer 1

Journal Entries:

Date	Account title and explanation	Debit	Credit
Jan 1,2021	Right-of-Use asset*	$607,206
	Lease liability		$607,206
	[To record operating lease]
Jan 1,2021	Lease liability	$52,000
	Cash		$52,000
	[To record payment of first lease payment]
Feb 1,2021	Lease liability	$49,224
	Lease expense [(607,206-52,000) x 0.5%]	$2,776
	Cash		$52,000
	[To record payment of first lease payment]
Mar 1,2021	Lease liability	$49,470
	Lease expense [(607,206-52,000-49,224) x 0.5%]	$2,530
	Cash		$52,000
	[To record payment of first lease payment]
Apr. 1,2021	Lease liability	$49,717
	Lease expense[(607,206-52,000-49,224-49,470) x 0.5%]	$2,283
	Cash		$52,000
	[To record payment of first lease payment]

*Calculations:

First lease payment	$52,000
Present value of remaining lease payments	$555,206
[$52,000 x 10.67703 present value annuity factor (0.5%, 11 years)]
Lease liability/Right of use	$607,206

Answer 2

THis is a SHORT_TERM lease, thus no amortixation required. only straight expense every month.