Question

Acwen Corp. is a U.S. company that owns equipment that is regularly leased to construction companies. Bentley Inc. is the lessee on a new four-year lease, which qualifies as an FINANCE LEASE for both parties. Lease Agreement [Excerpts] This Lease Agreement ("Agreement") is entered into by and between Acwen Corp.("Lessor"), and Bentley Inc. ("Lessee"). Lessor and Lessee are collectively referred to in this Agreement as the "Parties." This Agreement shall be effective as of the date executed by the Lessor, as set forth below. For the covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows: 1. Asset: The leased assets shall be equipment leased by the Lessee and leased from the Lessor. Lessor leases the assets to the Lessee on the terms and conditions set forth herein. The equipment has a carrying value of $200,000 at the time of the lease, a useful life of FOUR (4) years, and no salvage value. 2. Term: The term of this Agreement shall be a period of four (4) years, beginning on January 1, Year 1, and ending on December 31, Year 4. Any holding over after the expiration or earlier termination of the term without Lessor's prior written consent shall be a default of this Agreement. 5. Lease Value/Semiannual Payments: The lease payments to be paid by Lessee to the Lessor will be thirty thousand dollars ($30,000) every six months for the duration of the lease, with payments to be made on June 30 and December 31 each year. 12. Entire Agreement: This document constitutes the entire agreement and may be modified or amended only by written agreement signed by both parties. There are no oral agreements between the Parties. Present Value Factors PV of an annuity of $1 at 4.35% for 4 periods PV of an annuity of $1 at 2.175% for 8 periods PV of $1 at 4.35% for 4 periods PV of $1 at 2.175% for 8 periods 3.60015 7.27053 0.84339 0.84187

From Bentley’s perspective, provide the journal entries for the following:

1. At lease inception on January 1, Year 1

2. When the first lease payment is made on June 30, Year 1

3. When the second lease payment is made on December 31, Year 1

4. Determine the interest paid over the life of the lease.

From Acwen’s perspective, provide the journal entries for the following:

5. At lease inception on January 1, Year 1

6. When the first lease payment is made on June 30, Year 1

7. When the second lease payment is made on December 31, Year 1

8. Determine the interest income received over the life of the lease.

Answer 1

Answer

	From Bentley Prespective
	Date	Particulars	Debit	Credit
	Jan-01	Truck A/c	200000
		To Acwen A/c		200000
		(Being truck taken on lease)
	Jun-30	Interest A/c	8700
		To Acwen A/c		8700
		(Being Interest exp booked)
		Acwen A/c	30000
		To Cash A/c		30000
		(Being lease installment paid)
	Dec-31	Interest A/c	7773
		To Acwen A/c		7773
		(Being Interest exp booked)
		Acwen A/c	30000
		To Cash A/c		30000
		(Being lease installment paid)
	From Acwen Prespective
	Date	Particulars	Debit	Credit
	Jan-01	Bentley A/c	200000
		To Truck A/c		200000
		(Being truck provided on lease)
	Jun-30	Bentley A/c	8700
		TO Interest A/c		8700
		(Being Interest Income booked)
		Cash A/c	30000
		TO Bentley A/c		30000
		(Being lease installment Rec)
	Dec-31	Bentley A/c	7773
		TO Interest A/c		7773
		(Being Interest Income booked)
		Cash A/c	30000
		TO Bentley A/c		30000
		(Being lease installment Rec)

Interest Exense from Bentley Prespective and Interest Income from Acwen Prespective over the Term of Lease = 40000