Question

On January 1, 2021, Winn Heat Transfer leased office space under a three-year operating lease agreement. The arrangement specified three annual lease payments of $80,000 each, beginning December 21, 2021, and at each December 31 through 2023. The lessor, HVAC Leasing calculates lease payments based on annual interest rate of 5%. Winn also paid a $100,000 advance payment at the beginning of the lease. With permission of the owner, Winn made a structural modifications to the building before occupying the space at a cost of $180,000. The useful life of the building and the structural modifications were estimated to be 30 years with no residual value.

1. Record journal entry for the lease payment for Winn on December 31, 2022.

1. Record journal entry for the lease payment for Winn on December 31, 2023.

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Answer 1

C D E F Credit ($) Debit ($) 317860 317860 5 100000 100000 10893 69107|| 80000 33333 Α 1 1) 2 Date Paticulars 3 01-Jan-21 Reight of use asset (100000+(80000*2.7232)) 4 Lease payable (To record the lease payment) 6 01-Jan-21 Prepaid rent 7 Cash 8 |(To record advance lease paymnet paid) 9 31-Dec-21 Interest expense (5%*(317860-100000)) 10 Lease payable (diff) 11 Cash (1st lease payment) 12 (To record the lease payment) 13 31-Dec-21 Lease payable (100000/3) 14 Prepaid rent 15 (To record advance lease paymnet paid) 16 31-Dec-21 Amortization expense (113333-10893) 17 Right of use asset (to balance) 18 (To record the amortization expense) 19 31-Dec-21 Depreciation expense (180000/3 years) 20 Accumulated depreciation - leasehold improvement 21 (To record the depreciation expense) 22 31-Dec-22 Interest expense (317860-100000-69107)*5% 23 Lease payable 24 Cash (2nd lease payment) 25 (To record advance lease paymnet paid) 26 31-Dec-22 Lease payable (1000000/3) 27 Prepaid rent 28 (To record advance lease paymnet paid) 33333 102440 (33333+80000)=113333 102440 60000 60000l 7438 72562 80000 33333 33333

105895 105895 60000 60000 29 31-Dec-22 Amortization expense (113333-7438) 30 Right of use asset (to balance) 31 (To record the amortization expense) 32 31-Dec-22 Depreciation expense (180000/3 years) 33 Accumulated depreciation - leasehold improvement 34 |(To record the depreciation expense) 35 31-Dec-23 Interest expense (5%*(317860-100000-69107-72562)) 36 Lease payable 37 Cash (3rd lease payment) 38 |(To record the lease payment) 3810) 761901 80000