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12 August, 08:30

The city of Morehead leased equipment. The life of the non cancellable lease is 10 years. Using an 8 percent interest rate, the present value of the lease payments is $905,861. The first payment of $125,000 is due when the lease begins, January 10, 2017. An additional payment of $125,000 is due on January 10th for each of the next 9 years. Prepare journal entries to record

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  1. 12 August, 08:38
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    1. Dr Equipment $ 905,861.0

    Cr Lease Payable $ 905,861.00

    2. Dr Lease Payable $ 125,000.00

    Cr Cash$ 125,000.00

    3. Dr Lease payable $ 115,000.00

    Dr Interest Expense $ 10,000.00

    Cr Cash $ 125,000.00

    Explanation:

    City of Morehead

    Journal entries

    1)

    Dr Equipment $ 905,861.00

    Cr Lease Payable$ 905,861.00

    2)

    Dr Lease Payable $ 125,000.00

    Cr Cash $ 125,000.00

    3)

    Dr Lease payable $ 115,000.00

    Dr Interest Expense (125000 x 8%)

    $ 10,000.00

    Cr Cash $ 125,000.00
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