Question

On January 1, 2023, SBI leased several items of equipment under a two-year operating lease agreement from Pharmacy, which routinely finances equipment for other firms at an annual interest rate of 4%. The contract calls for four rent payments of $44,000 each, payable semiannually on June 30 and December 31 of each year. The equipment was acquired by Pharmacy at a cost of $364,000 and was expected to have a useful life of 5 years with no residual value. Both SBI and Pharmacy record amortization and depreciation semiannually.

Prepare the appropriate journal entries for the lessee from the beginning of the lease through the end of 2023.

Answer 1

Solution Journal entries in the books of Lessee Date Debit Gredet Jan 1 167540 167540 3350 June 30 particulars Right of use Asset Dr To bease pay alle q] - [ 44000 X 3.80773] | [To record the inception of lease payable Interest expense alc ar [167540 x 2%] Lease payable or To cash [To record Lease payment] Amortization expense at [44000 – 3350] To Right of use asset alc I to record the amortization] 40650 44000 June 30 40650 40650

2538 Dec 31 41462 Interest Expense al [ 2% x_167540–40650]] Lease payable al or To cash alc [ To record the lease payment] 44000 41462 рес2) 41462 Amortization expense ale or [ 44000 - 2538] To Reght of use asset al [ To record the anortization expaye]