Question

On January 1, 2021, Nath-Langstrom Services, Inc., a computer software training firm, leased several computers under a two-year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 4%. The contract calls for four rent payments of $19,500 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $109,000 and were expected to have a useful life of five years with no residual value. Both firms record amortization and depreciation semiannually. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease. 2. Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first year of the lease.

Answer 1

Answer:

Explanation:

1.

Journal Entries in the books of Nath-Langstrom Services:

Date    Account Titles and Explanation           Debit        Credit

30-Jun-18   Rent Expense                          $19,500  

                         Cash                                                         $19,500

31-Dec-18 Rent Expense                                  $19,500

                        Cash                                                        $19,500

2. Journal Entries in the books of Computer World Leasing:

Date Account Titles and Explanation Debit Credit

30-Jun-18 Cash 19000  

Rent Revenue  19000

31-Dec-18 Cash 19000  

Rent Revenue  19000

31-Dec-18 Depreciation Expense 13500  

Accumulated Depreciation  13500