Question

Windsor Company leased equipment from Costner Company, beginning on December 31, 2019. The lease term is 5 years and requires equal rental payments of $59,394 at the beginning of each year of the lease, starting on the commencement date (December 31, 2019). The equipment has a fair value at the commencement date of the lease of $270,000, an estimated useful life of 5 years, and no estimated residual value. The appropriate interest rate is 5%.

Click here to view factor tables.
Prepare Windsor’s 2019 and 2020 journal entries, assuming Windsor depreciates similar equipment it owns on a straight-line basis. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,275.)
Date
Account Titles and Explanation
Debit
Credit
12/31/1912/31/20 12/31/1912/31/20
enter an account title To record lease liability on December 31 2019
enter a debit amount
enter a credit amount
enter an account title To record lease liability on December 31 2019
enter a debit amount
enter a credit amount
(To record lease liability)
12/31/1912/31/20 12/31/1912/31/20
enter an account title To record lease payment on December 31 2016
enter a debit amount
enter a credit amount
enter an account title To record lease payment on December 31 2016
enter a debit amount
enter a credit amount
(To record lease payment)
12/31/1912/31/20 12/31/1912/31/20
enter an account title To record interest expense on December 31 2020
enter a debit amount
enter a credit amount
enter an account title To record interest expense on December 31 2020
enter a debit amount
enter a credit amount
enter an account title To record interest expense on December 31 2020
enter a debit amount
enter a credit amount
(To record interest expense)
12/31/1912/31/20 12/31/1912/31/20
enter an account title To record amortization of the right-of-use asset on December 31 2020
enter a debit amount
enter a credit amount
enter an account title To record amortization of the right-of-use asset on December 31 2020
enter a debit amount
enter a credit amount
(To record amortization of the right-of-use asset)

Answer 1

12/31/19

Dr Right-of-Use Asset $270,000

Cr Lease liability $270,000

12/31/19

Dr Lease liability $59,394

Cr Cash $59,394

12/31/20

Dr Interest expense $10,530

Dr Lease liability $48,864

Cash $59,394

12/31/20

Dr Amortization expense $54,000

Cr Right-of-Use asset $54,000

Step-by-step explanation:

Preparation of Windsor’s 2019 and 2020 journal entries

12/31/19

Dr Right-of-Use Asset $270,000

Cr Lease liability $270,000

[Being To record lease liability]

12/31/19

Dr Lease liability $59,394

Cr Cash $59,394

[Being To record lease payment]

12/31/20

Dr Interest expense $10,530

[($270,000-$59,394) x 5%]

Dr Lease liability $48,864

($59,394 -$10,530)

Cash $59,394

[Being To record interest expense]

12/31/20

Dr Amortization expense $54,000

[$270,000/5 years]

Cr Right-of-Use asset $54,000

[Being To record amortization of the right-of-use asset]