Question

On January 1, 2021, Nath-Langstrom Services, Inc., a computer software training firm, leased several computers under a two-year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 4%. The contract calls for four rent payments of $18,000 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $106,000 and were expected to have a useful life of five years with no residual value. Both firms record amortization and depreciation semiannually. (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 tables provided.) Required: 1. Prepare appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease. 2. Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first year of the lease. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease. (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:

In the books of Lessee (Nath-langstrom services Inc.)
Date	Account titles and explanation	Debit	Credit
2021
Jan 1.	Right of use of asset (Note:1)	68540
	Lease payable		68540
	(Lease liability recorded)
June 30.	Interest expense (68540*4%*1/2)	1371
	Lease payable (18000-1371)	16629
	Cash		18000
	(Lease payment made)
June 30.	Amortization expense	16629
	Right of use of asset		16629
	(Amortization recorded)
Dec 31.	Interest expense (68540-16629)*4%*1/2	1038
	Lease payable (18000-1038)	16962
	Cash		18000
	(Lease payment made)
Dec 31.	Amortization expense	16962
	Right of use of asset		16962
	(Amortization recorded)
Note:1
Lease rental=$ 18000
Discount factor=Interest rate for 6 months=2%
Lease term=4 rental payments
Lease liability=Lease rental*Discount factor at 2% for 4 years=18000*3.80773=68539.14=$ 68540
In the books of Lessor (Computer world)
Date	Account titles and explanation	Debit	Credit
June 30.	Cash	18000
	Lease revenue		18000
	(Lease revenue recorded)
June 30.	Depreciation expense (Note:2)	10600
	Accumulated depreciation		10600
	(Depreciation recorded)
Dec 31.	Cash	18000
	Lease revenue		18000
	(Lease revenue recorded)
Dec 31.	Depreciation expense (Note:2)	10600
	Accumulated depreciation		10600
	(Depreciation recorded)
Note:2
Depreciation expense for the year=(Cost-Residual value)/Useful life=(106000-0)/5=$ 21200
Depreciation expense for 6 months=21200/2=$ 10600