Module 10: Leases and Pensions

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Module 10 Leases and Pensions

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Illustration 1 - Leases

• Requirement 3 Prepare the following journal
  entries for the year 2005
• Initial lease at 1/1/05
• First payment at 1/1/05
• Second payment at 12/31/05

Equipment 22,198 Lease Liability
22,198
Lease Liability 6,000 Cash 6,000
Interest Expense 1,296 Lease Liability
4,704 Cash 6,000
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Illustration 1 - Leases

• For the last entry, we must calculate
  straight-line depreciation on leased asset at
  12/31/05. Since we are recording an asset, we
  must depreciate the asset.
• Note that the calculation here is based on the
  length of time that the lessee will actually use
  the asset (6 years here because of the BPO).
• (Cost-SV)/Est. life (22,198 - 0)/6 3,700
• JE for Depreciation at 12/31/05

Depreciation expense 3,700 Accumulated Depr.
3,700