Answer:
Journal Entry
Explanation:
The Journal Entry is shown below:-
Annual interest rate = 4% (Semi annual is 2%)
Lease period = 2 years (4 semi annual lease terms)
Present value of periodic lease payment = Lease payment × PVAF (r,n)
= $40,000 × PVAF (2%,4)
= $40,000 × 3.8077
= $152,308
1. Right of use asset Dr, $152,308
To Lease payable $152,308
(Being Beginning of lease is recorded)
2. Interest expenses Dr, $3,046
(2% × ($152,308 - 0))
Lease payable Dr, $36,954
To cash $40,000
(Being lease and interest payment is recorded)
3. Amortization expense Dr, $36,954
($40,000 - $3,046)
To right of use assets $36,954
(Being amortization on the right to use of assets is recorded)
4. Interest expense Dr, $2,307
(($152,308 - $36,954) × 2%)
Lease payable Dr, $37,693
To Cash $40,000
(Being lease and interest payment is recorded)
5. Amortization expense Dr, $37,693
($40,000 - $2,307)
To right of use assets $37,693
(Being amortization on the right use assets is recorded)
