Maris Co. purchased a machine for cash on January 1, 2015, for $1,500,000 for th

Question

Maris Co. purchased a machine for cash on January 1, 2015, for $1,500,000 for the express purpose of leasing it. The machine is expected to have a five-year life, nosalvage value, and be depreciated on a straight-line monthly basis. On January 1, 2015, under a cancelable lease, Maris leased the machine to Dunbar Company for $450,000 a year for a four-year period ending December 31, 2018. Maris incurred total maintenance and other related costs under the provisions of the lease of $15,000 relating to the year ended December 31, 2015. Harley paid $450,000 to Maris on January 1, 2015.

Instructions [Assume the operating method is appropriate for parts (a) and (b).]

(a) Prepare all of Maris’ journal entries for January 1, 2015 and December 31, 2015.

(b) Prepare all of Dunbar’s journal entries for January 1, 2015 and December 31, 2015.

Explanation / Answer

Journal Entries in the Books of Maris Date Particulars Debit Credit 01-01-2015 Machinery A/c        15,00,000      TO Bank        15,00,000 (purchase of Machinery) 01-01-2015 Bank A/c           4,50,000 To Lease Rent Income           4,50,000 (being amount of Lease rent received) 31-12-2015 Depreciation           3,00,000 To Acc Depreciation           3,00,000 (being amount of Dep Provided) (1500000/5) 31-12-2015 Maintanence Machinery              15,000     To Expenses Payable              15,000 (being Amount of Maint machinery Provided) Journal Entries in the Books of Dunbar 01-01-2015 Lease rent Paid           4,50,000 To Bank           4,50,000 (being amount of Lease rent Paid)

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