Question

on January 2, 2019, another of Banana’s subsidiaries, Apple, entered into an operating lease for four years, with semi-annual lease payments as follows: payments 1 and 2 = $22,500; payments 3 and 4 = $27,000; payments 5 and 6 = $30,000; and payments 7 and 8 = $32,000. Payments are to be made on the inception date and every June 30 and December 31 thereafter. The lessor’s interest rate is 6%. Provide the amortization table for the lease and the journal entries required at the inception of the lease and the lease payment on June 30, 2020. The lessee records amortization expense each time a lease payment is made

Answer 1

Interest rate for six month (6%/2)				3.00%
Period	Payment No.	payment	Discount rate@3%	Present value
0	1	$22,500	1	$22,500
1	2	$22,500	0.970873786	$21,845
2	3	$27,000	0.942595909	$25,450
3	4	$27,000	0.915141659	$24,709
4	5	$30,000	0.888487048	$26,655
5	6	$30,000	0.862608784	$25,878
6	7	$32,000	0.837484257	$26,799
7	8	$32,000	0.813091511	$26,019
8		0	0.789409234	$0
		Lease liability		$199,855

Lease amortization table - lessee
Date	Beginning balance of lease payable	Lease payment	Interest expense (beginning balance of lease payable *3% )	Reduction in lease payable (lease payment - interest expense)	Beginning balance of lease payable (beginning balance of lease payable - reduction in lease payable)
2-Jan-19	$199,855	$22,500		$22,500	$177,355
30-Jun-19	$177,355	$22,500	$5,321	$17,179	$160,176
31-Dec-19	$160,176	$27,000	$4,805	$22,195	$137,981
30-Jun-20	$137,981	$27,000	$4,139	$22,861	$115,120
31-Dec-20	$115,120	$30,000	$3,454	$26,546	$88,574
30-Jun-21	$88,574	$30,000	$2,657	$27,343	$61,231
31-Dec-21	$61,231	$32,000	$1,837	$30,163	$31,068
30-Jun-22	$31,068	$32,000	$932	$31,068	$0

Journal entries
Date	General Jornal	Debit	Credit
2-Jan-19	Right of use Asset	$199,855
	Lease liability		$199,855
	(To record the lease)
2-Jan-19	Lease liability	$22,500
	Cash		$22,500
	(to record Lease liability paid)
30-Jun-20	Lease expense	$27,000
	Lease liability		$4,139
	Right of use Asset		$22,861
	(To record lease expense)
30-Jun-20	Lease liability	$27,000
	Cash		$27,000
	(to record Lease liability paid)