Question

Newton Labs leased chronometers from Brookline Instruments on January 1, 2018. Brookline Instruments manufactured the chronometers at a cost of $110,000. The chronometers have a fair value of $143,000. Appropriate adjusting entries are made quarterly. (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.)

Related Information:
Lease term	5 years (20 quarterly periods)
Quarterly lease payments	$8,003 at Jan. 1, 2018, and at Mar. 31, June 30, Sept. 30, and Dec. 31 thereafter.
Economic life of asset	6 years
Estimated residual value of chronometers at end of lease term	$6,177
Interest rate charged by the lessor	12%

Required:
1. Prepare appropriate entries for Newton Labs to record the arrangement at its commencement, January 1, 2018, and on March 31, 2018.
2. Prepare appropriate entries for Brookline Instruments to record the arrangement at its commencement, January 1, 2018, and on March 31, 2018.
  

Answer 1

1. In the books of Newton Labs:
Date	Account title	Debit	Credit
Jan.1,2018	Asset	122636
	Lease Payable		122636
	(Leasing of the asset)
Jan.1,2018	Lease Payable	8003
	Cash		8003
	(1st lease payment)
Mar.30,2018	Lease Payable	4564
	Interest Expense	3439
	Cash		8003
	(2nd lease payment)

2. In the books of brookline instruments:
Date	Account title	Debit	Credit
Jan.1,2018	Lease receivable	122636
	Asset		122636
	(Leasing of the asset)
Jan.1,2018	Cash	8003
	Lease receivable		8003
	(1st lease payment received)
Mar.30,2018	Cash	8003
	Interest Income		3439
	Lease receivable		4564
	(2nd lease payment received)

Amortization schedule

Date	Beg.Bal.	Interest	Cash	Lease Rental
		Income	Received	Accounted
Jan.1, 2018	122636	0	8003	8003
Mar.31,2018	114633	3439	8003	4564
Sep.30, 2018	110069	3302	8003	4701
Dec.31,2018	105368	3161	8003	4842
Mar.31 , 2019	100526	3016	8003	4987
Jun.30, 2019	95539	2866	8003	5137
Sep.30 , 2019	90402	2712	8003	5291
Dec.31,2019	85111	2553	8003	5450
Mar.31 , 2020	79661	2390	8003	5613
Jun.30, 2020	74048	2221	8003	5782
Sep.30 , 2020	68267	2048	8003	5955
Dec.31,2020	62312	1869	8003	6134
Mar.31 , 2021	56178	1685	8003	6318
Jun.30, 2021	49860	1496	8003	6507
Sep.30 , 2021	43353	1301	8003	6702
Dec.31,2021	36651	1100	8003	6903
Mar.31 , 2022	29747	892	8003	7111
Jun.30, 2022	22637	679	8003	7324
Sep.30 , 2022	15313	459	8003	7544
Dec.31,2022	7769	234	8003	7769
T o t a l		37424	160060	122636
8003(1-(1/(1.03)^20)/0.03) x (1.03)
8003((1-0.5537)/0.03) x 1.03
8003(14.8775)x1.03
122636