Skysong Company leased equipment from Costner Company, beginning on December 31, 2019. The lease term is 4 years and requires equal rental payments of $40,654 at the beginning of each year of the lease, starting on the commencement date (December 31, 2019). The equipment has a fair value at the commencement date of the lease of $140,000, an estimated useful life of 4 years, and no estimated residual value. The appropriate interest rate is 11%. Click here to view factor tables. Prepare Skysong’s 2019 and 2020 journal entries, assuming Skysong depreciates similar equipment it owns on a straight-line basis.

Date       Account Titles and Explanation           Debit          Credit

31/12/19   Leased Assets                                     $140,000

                     Lease liability                                                     $140,000

               (To record lease liability)

31/12/19   Lease liability                                        $40,654

                      Cash                                                                  $40,654

                (To record lease payment)

31/12/19   Interest expenses                                  $10,928

               [(140,000-40,654)*11%

               Lease liability                                          $29,726

                      Cash                                                                   $40,654

               (To record interest expenses)

31/12/19   Amortization expense ($140,000/4)      $35,000

                      Right of use Assets                                            $35,000

               (To record amortization expense)