Problem
On January 1, 2024, Nath-Langstrom Services, Incorporated, a computer software training firm, leased several computers under a two-year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 4%.
1) The contract calls for four rent payments of $12,500 each, payable semiannually on June 30 and December 31 each year.
2) The computers were acquired by ComputerWorld at a cost of $95,000 and were expected to have a useful life of five years with no residual value.
3) Both firms record amortization and depreciation semiannually.
Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
Task
• Prepare appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease.
• Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first year of the lease.