Answer:
Rodgers Corporation and Packers, Inc.
Journal Entries:
1. Rodgers Corporation:
January 1, 2019:
Debit Right of Use Assets $33,400
Credit Lease Liability $33,400
To record the right of use asset and lease liability with the PV.
Debit Lease Liability $12,000
Credit Cash $12,000
To record the first payment of the lease liability on January 1, 2019
December 31, 2019:
Debit Amortization Expense $10,288
Debit Interest Expense $1,712
Credit Right of Use Assets $12,000
To record the annual amortization of the right of use assets.
Packers, Inc.
January 1, 2019:
Debit Cash $12,000
Credit Unearned Lease Revenue $12,000
To record unearned lease revenue.
December 31, 2019:
Debit Unearned Lease Revenue $12,000
Credit Lease Revenue $12,000
To record the earned lease revenue.
Debit Depreciation Expense $6,000
Credit Accumulated Depreciation- Leased Equipment $6,000
To record depreciation expense for the year.
Explanation:
a) Data and Calculations:
January 1, 2019
Annual lease payment at the beginning of each year = $12,000
The Present Value of annual lease payments = $33,400.
Implicit rate = 8%
To determine the PV of the lease payments:
N (# of periods) 3
I/Y (Interest per year) 8
PMT (Periodic Payment) 12000
FV (Future Value) 0
Results
PV = $33,399.18
Sum of all periodic payments $36,000.00
Total Interest $2,600.82
Schedule of Payments
Period PV PMT Interest FV
1 $33,400 $12,000.00 $1,712 $23,112
2 $23,112 $12,000.00 $889 $12,000
3 $12,000 $12,000.00 $0.00 $0.00
Analysis:
January 1, 2019:
Right of Use Assets $33,400 Lease Liability $33,400
Lease Liability $12,000 Cash $12,000
December 31, 2019:
Amortization Expense $10,288 Interest Expense $1,712 Right of Use Assets $12,000
Packers, Inc.
January 1, 2019:
Cash $12,000
Unearned Lease Revenue $12,000
December 31, 2019:
Unearned Lease Revenue $12,000
Lease Revenue $12,000
Depreciation Expense $6,000 ($60,000 ÷ 10)
Accumulated Depreciation- Leased Equipment $6,000
