Question

Chance Enterprises leased equipment from Third Bank Leasing on January 1, 2018. Third Bank purchased the equipment at a cost of $1,050,000. Chance elected the short-term lease option. Appropriate adjusting entries are made annually.

Related Information:

Lease term 1 year (4 quarterly periods)

Quarterly lease payments $42,000 at Jan. 1, 2018, and at Mar. 31, June 30, and Sept. 30.

Economic life of asset 5 years Interest rate charged by the lessor 6%

Required: Prepare appropriate entries for Chance from the beginning of the lease through December 31, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to the nearest whole dollar amount.)

Answer 1

Answer:

Chance Enterprises

Adjusting Entries:

The lease is a short-term lease and so no entry is made at the start of lease.

Adjusting entries:

Date	Account Titles and Explanation	Debit	Credit
1-Jan	Lease Expense	$42,000
	Cash		$42,000
	(To record quarterly lease payment)
31-Mar	Lease Expense	$42,000
	Cash		$42,000
	(To record lease payment for the quarter Apr - Jun)
30-Jun	Lease Expense	$42,000
	Cash		$42,000
	(To record lease payment for the quarter July - Sept)
30-Sep	Lease Expense	$42,000
	Cash		$42,000
	(To record lease payment for the qurter Sept - December)