accounting!!! help, please, 10 pnts!?
On January 2, 2005, the Wilcox Studios leased six computers for use in the engineering department. The lease period is for 13 years and the estimated economic life of the leased property is 15 years. The lease does not contain automatic title transfer or a bargain purchase option. Lease payments are ,000 per year, payable each December 31. The incremental borrowing rate for Wilcox is 12 percent and the implicit interest rate (known by Wilcox) is 10 percent. The company uses straight-line depreciation for this type of equipment.
Provide the necessary journal entries to record the transactions for Wilcox for the period January 2, 2005 through December 31, 2006.
I have:
Dec 31 2005
Rent Expense 9,000
Cash 9,000
Dec 31 2006
Rent Expense 9,000
Cash 9,000
Is this correct? If not please Help!
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your very first entry should be debit to the computers value and credit to lease payable. at the end of each year (2005 and 2006) your journal entry would switch the lease payable to a debit, to lower the amount owed, and a credit to cash.
you need to record depreciation. the journal entry is a debit to depreciation expense and a credit to accumulated depreciation. First, you need to find the future value of the lease payments. You can use the future value of an annuity table, and find the value for 10% and 13 years (24.523). You then take the 9000 lease payments and multiply this by the factor, which gives you 220,707. Now take that number and divide it my the lease life of 13 years. The amount of 16977.46 is the amount of depreciation. These entries will be for the end of 2005 and 2006.
Now for the entries at the beginning of the year, you need to account for interest. You will need to make an amortization table to compute the correct amount of interest.