Question

On January 1, 2018, Robertson Construction leased several items of equipment under a two-year operating lease agreement from Jamison Leasing, which routinely finances equipment for other firms at an annual interest rate of 5%. The contract calls for four rent payments of $59,000 each, payable semiannually on June 30 and December 31 each year. The equipment was acquired by Jamison Leasing at a cost of $379,000 and was expected to have a useful life of 6 years with no residual value. Both firms record amortization and depreciation semi-annually. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: Prepare the appropriate journal entries for the lessee from the beginning of the lease through the end of 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 amounts.)

Answer 1

Compute present value of periodic lease payments.

Annual interest rate is 5% (Semi-annual is 2.5%)

Lease period is 2 years (4 semi annual lease terms)

Present value of periodic lease payments = lease rental * PVAF (r,n)

= $59,000 * PVAF (2.5% , 4)

= $59,000 * 3.76197

= $221,956

Journal Entries are in attachment