Question

On January 2, 2015, Denny Corp. enters into a five-year capital lease for machinery with annual payments of $15,000. Complete the necessary journal entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Answer 1

some information was missing, the present value of the equipment which is $65,000

the journal entries to record the lease agreement is:

January 2, 2015, five year lease for machinery

Dr Machinery 65,000

Cr Lease liability 65,000

then you must record the lease payment, since it is done immediately, there is no interest expense recorded:

January 2, 2015, first annual lease payment

Dr Lease liability 15,000

Cr Cash 15,000

Only the first lease payment will not include an interest expense since it was done the same day as the machinery was leased.