Question

# Bright Company leases a piece of equipment to Rod Company for 10 years under the following...

Bright Company leases a piece of equipment to Rod Company for 10 years under the following terms: 1) the leases is an operating lease, 2) Rod agrees to pay \$35,000 at the beginning of each year. Bright purchased the equipment at a cost of \$350,000. the equipment has an estimated life of 10 years and Bright uses straight-line depreciation. assume that there are no initial direct costs involved in this lease. What would be the journal entry Bright would use to record the Purchase of the Leased Equipment?

 a. Dr. Equipment Leased to others    \$35,000    Cr. Cash (notes Payable   \$35,000 b. Dr. Equipment Leased o Others   \$350,000    Cr. Notes Payable \$350,000 C. Dr. Equipment \$350,000 CR. Cash (or Notes Payable    \$350,000 d. Dr. Cash \$350,000 Cr. Equipment Leased to Others \$350,000

Option C

Explanation:

In case of an operating lease, the journal entry for purchase of asset/equipment would be the normal purchase entry.

So, the entry would be:

 Asset Dr. Cost of asset To Cash/Notes payable Cost of asset

Therefore, in the given question, the entry would be:

 Equipment Dr. \$      350,000 To Cash/Notes payable \$      350,000

Hence,

Option 'C' is correct and rest all are incorrect.

In case of any doubt or clarification, feel free to come back via comments.

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