A company leases some of the equipment it uses. The lease term is 5 years, and t

Question

A company leases some of the equipment it uses. The lease term is 5 years, and the lease payment are to be made in advance as show in the following schedule:

January 1, 2011     $60,000

January 1, 2012       60,000

January 1, 2013       90,000

January 1, 2014      110,000

January 1, 2015      140,000

                            $460,000

The equipment is to be used evenly over the 5-year period. For each of the five years, I need to give the entry that should be made at the time the lease payment is made to allocate the proper share of rent expense to each period. the lease is classified as an operating least by the company.

Explanation / Answer

Date

Particulars

L/F

Dr $

Cr $

Date

Particulars

L/F

Dr $

Cr $

1-Jan-11 Rent expenses 60,000          Cash 60,000 1-Jan-12 Rent expenses 60,000          Cash 90,000 1-Jan-13 Rent expenses 90,000          Cash 90,000 1-Jan-14 Rent expenses 110,000          Cash 110,000 1-Jan-15 Rent expenses 140,000          Cash 1`40,000

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