Question

On August 1, 2018, Bazinga Company entered into a capital lease, and correctly recorded the leased asset, and related obligation at $100,000. The annual interest rate implicit in the lease was 9%, and the first lease payment of $1,600 is due at the end of each month of the lease. Prepare journal statement

Answer 1

To prepare the journal statement for the lease transaction, the leased asset is debited and the lease obligation is credited. Monthly journal entries are needed to reflect the lease payments, which include both principal and interest.

Step-by-step explanation:

To prepare the journal statement for the lease transaction, we need to record the initial entry for the leased asset and related obligation. The leased asset will be debited and the lease obligation will be credited. Since the lease is a capital lease, the initial entry will be:

Leased Asset: Debit $100,000

Lease Obligation: Credit $100,000

Since the first lease payment is due at the end of each month, we will need to record monthly journal entries to reflect the lease payments. The monthly lease payment is $1,600 and includes both principal and interest. We can calculate the interest portion of the payment using the annual interest rate of 9%. The first journal entry for the lease payment would be:

Interest Expense: Debit $750

Lease Obligation: Credit $850