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Kingbird Company leased equipment from Costner Company, beginning on December 31, 2019. The lease term is 4 years and requires equal rental payments of $32,230 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 $120,000, an estimated useful life of 4 years, and no estimated residual value. The appropriate interest rate is 5%. Prepare Kingbird's 2019 and 2020 journal entries, assuming Kingbird depreciates similar equipment it owns on a straight-line basis.
Date Account Titles and Explanation Debit Credit

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Chrisnando

Answer:

Kingbird's 2019 and 2020 journal entries, assuming Kingbird depreciates similar equipment it owns on a straight-line basis is prepared in the table below.

_____________________________

Date: 12/31/2019

Account: Right of use asset. Debit: $120,000

Account: Lease liability. Credit: $120,000

(To record lease liability)

_____________________________

Date: 12/31/2019

Account: Lease liability. Debit: $32,230

Account: Cash. Credit: $32,320

(To record lease payment)

_____________________________

Date: 12/31/2020

Account: Interest Expense ($120,000-$32,230)*5%.  Debit: $4,389

Account: Lease Liability (Plug in) ($32,320 - $4,389). Debit: $27,841

Account: Cash.  Credit: $32,320

______________________________

Date: 12/31/2020

Account: Amortization Expense. Debit: $30,000

Account: Right of use asset. Credit: $30,000

(To record amortization) $120,000/4 years

_____________________________

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