Chapter 14, Problem 11APSA

To determine

Concept Introduction:

The lease agreements are commonly of two types-

Financial lease agreement and

Operating lease agreement

Financial lease agreement is a lease agreement or a way of providing finance. In this type of lease legal owner is the finance company for the duration of the lease and on the other hand lessee has operating control as well as substantial share of risk and return.

Requirement 1:

We have to determine the journal entry at the inception of lease.

Answer to Problem 11APSA

Date	Particulars	Amount ($)	Amount($)
January 1	Lease asset- Equipment	51000
	Lease Liability		51000
	( to record asset or liability at the inception of lease)

Explanation of Solution

At the inception of finance lease the lease asset account will get debited and lease liability account will get credited with the amount of annual lease payment.

To determine

Concept Introduction:

The lease agreements are commonly of two types-

Financial lease agreement and

Operating lease agreement

Financial lease agreement is a lease agreement or a way of providing finance . In this type of lease legal owner is the finance company for the duration of the lease and on the other hand lessee has operating control as well as substantial share of risk and return.

Requirement 2:

We have to determine the journal entry at the time of cash payment.

Answer to Problem 11APSA

Date	Particulars	Amount ($)	Amount($)
January 1	Lease expense	18000
	Cash		18000
	( to record lease rent payment)

Explanation of Solution

At the time of finance lease cash payment lease expense account will get debited and cash account will get credited with the amount of cash payment.

To determine

Concept Introduction:

The lease agreements are commonly of two types-

Financial lease agreement and

Operating lease agreement.

Financial lease agreement is a lease agreement or a way of providing finance. In this type of lease legal owner is the finance company for the duration of the lease and on the other hand lessee has operating control as well as substantial share of risk and return.

Requirement 3:

We have to determine the journal entry for the amortization of asset.

Answer to Problem 11APSA

Date	Particulars	Amount ($)	Amount($)
Year 1	Depreciation (Reduction of gross asset)	17000
	Depreciation expense		17000
	( to record asset depreciation)
Year 2	Depreciation (Reduction of gross asset)	17000
	Depreciation expense		17000
	( to record asset depreciation)
Year 3	Depreciation (Reduction of gross asset)	17000
	Depreciation expense		17000
	( to record asset depreciation)

Explanation of Solution

At the time of recording depreciation or amortization, depreciation ( reduction of gross asset) account will get debited and depreciation expense account will get credited with the amount of depreciation.

Amount of depreciation is calculated by dividing 51000 by 3 i.e. value of five year lease payment divided by lease life.

To determine

Concept Introduction:

The lease agreements are commonly of two types-

Financial lease agreement and

Operating lease agreement.

Financial lease agreement is a lease agreement or a way of providing finance. In this type of lease legal owner is the finance company for the duration of the lease and on the other hand lessee has operating control as well as substantial share of risk and return.

Requirement 4:

We have to determine the journal entry at the time of cash lease payment at the end of year 1 and year 2.

Answer to Problem 11APSA

Date	Particulars	Amount ($)	Amount($)
Year 1	Lease Liability	18000
	Interest	1981
	Cash		19981
	( to record lease rental payment)
Year 2	Lease Liability	18000
	Interest	1019
	Cash		19019
	( to record lease rental payment)

Explanation of Solution

At the time of lease rental payment at the end of year one, lease liability account and interest expense account will get debited with their respective amount and cash account will get credited with the total amount of lease liability and interest expense.