wainwright ropes leased high tech electronic equipment from wacha leasing on jan

Question

wainwright ropes leased high tech electronic equipment from wacha leasing on jan 1 2018. wacha purchased the equipment from red bird machines at a cost of $215,732. the equipment has an estimated useful life of 6 yeasts and possession will revert back to wacha at end of lease.  

lease term 3 yrs quarterly
quarterly rental payments 20000 at beginning of period
economic life 3 years
fv of asset 215732
implicit in rate 8%

prepare appropriate entries:

1. record lease
2. record cash payment
3. record accrued interest
4. record amortization expense

Explanation / Answer

1 to 4) Journal Entries in the books of Wainwright (Amount in $)

Date Account Titles ane Explanation Debit Credit Jan 1, 2018 Right to Use Asset 215,732 Lease Liability 215,732 (To record the lease) Jan 1, 2018 Lease Liability 20,000 Cash 20,000 (To record the first lease payment) April 1, 2018 Interest Expense [($215,732-$20,000)*8%*3/12] 3,915 Lease Liability ($20,000 - $3,915) 16,085 Cash 20,000 (To record the second lease payment and interest) Dec. 31, 2018 Amortization Expense 71,911 Right of Use Asset ($215,732/3 yrs) 71,911 (To record amortization expense)

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