Question

4 (20 points teases On January 1, 2020 Klowa Co. leases equipment on a three-year lease. This lease is a finance lease. The lease requires three $25,480 lease payments (the first is on 1/1/20, the second is on 12/31/20, and the third is on 12/31/21. The present value of the three annual lease payments is $70,980, using a 7.9% interest rate. a) Complete the lease payment schedule below. Round to the nearest dollar. Show and label supporting computations as needed. Beginning Balance of Date Lease Liability 1/1/2020 Interest on Lease Liability at 7.9% Ending Balance of Lease Liability Lease Liability Cash Lease Payment 12/31/2020 12/31/2021 b) In the journal below prepare the following journal entries (and show your computations where needed): L The 1/1/20 journal entry to start the lease and record any asset or liability The 1/1/20 journal entry to record the first $25,480 lease payment iii. The 12/31/20, 12/31/21, and 12/31/22 journal entries to record the straight-line amortization with zero salvage value v. The 12/31/20 and 12/31/21 journal entries to record the cash payment Date Account Debit Credit 5

Answer 1

a.)	Date	Beginning balance of	Interest on lease	Lease	Cash	Ending balance of
		Lease liability	liability at 7.9%	Liability	Lease payment	Lease liability
	1/1/2020	70,980			25,480	45,500
	12/31/2020	45,500	3,595	21,885	25,480	23,615
	12/31/2021	23,615	1,865	23,615	25,480	0
b.)	Date	Account Titles	Debit $	Credit $
(i)	1/1/2020	Right of use assets	70,980
		Lease liability		70,980
(ii)	1/1/2020	Lease liability	25,480
		Cash		25,480
(iii)	12/31/2020	Amortization Expense	23,660
		Right of use assets		23,660
		(70,980 / 3 )
	12/31/2021	Amortization Expense	23,660
		Right of use assets		23,660
		(70,980 / 3 )
	12/31/2022	Amortization Expense	23,660
		Right of use assets		23,660
		(70,980 / 3 )
(iv)	12/31/2020	Lease liability	21,885
		Interest Expense	3,595
		Cash		25,480
	12/31/2021	Lease liability	23,615
		Interest Expense	1,865
		Cash		25,480