Answer Happy

Accounting for Leases On January 3, 2020, Hanna Corporation signed a lease on a machine for its manufacturing operation and the lease commences on the same date. The lease requires Hanna to make six annual lease payments of $12,000 with the first payment due December 31,2020. Hanna could have financed the machine by borrowing the purchase price at an interest rate of 7%. a. Prepare the journal entries that Hanna Corporation would make on January 3 and December 31, 2020, to record this lease assuming. i. the lease is reported as an operating lease. ii. the lease is reported as a finance lease. b. Post the journal entries of part a to the appropriate T-accounts. c. Show how the entries posted in part b would affect the financial statements using the financial statement effects template. Note: Round answers to the nearest dollar. Use rounded answers for subsequent computations. Journal entries T-accounts Financial statement effects template i. The lease is reported as an operating lease. Date Description 1/3/19 Right-of-use asset - operating lease Operating lease liability 12/31/19 Operating lease liability Cash 12/31/19 Operating lease expense Right-of-use asset - operating lease Operating lease liability → + ◆ Debit 0 x 0✔ 12,000 ✓ 0✔ 12,000 ✓ 0✔ 0 ✓ Credit 0✔ 0 x 0 ✓ 12,000 ✓ 0✓ 12,000 * 0 x
ii. The lease is reported as a finance lease. Date Description 1/3/19 Right-of-use lease asset - finance lease Finance lease liability 12/31/19 Amortization expense - finance lease Accumulated amortization - finance lease 12/31/19 Interest expense Finance lease liability Cash Debit 57,198 0✔ 9,533 0 4,004 ✔ 7,996 ✔ 0✔ Credit 0 57,198 0 9,533 0✔ 12,000
Journal entries T-accounts Financial statement effects template i. the lease is reported as an operating lease. Cash 0✓ Right-of-use Asset-Operating Lease 0 x 0 0 x ii. the lease is reported as a finance lease. Cash 0✔ Interest Expense 0 x 0 x Accumulated Amortization 0 x 0✔ Operating Lease Liability 0 x 0 ✓ Lease Expense 0 0 x 0 x Finance Lease Liability 0 x 0 0✔ Amortization Expense 0 x Right-of-use Asset-Finance Lease 0✔ 0 x 0 ✓
Journal entries T-accounts Financial statement effects template Note: Use negative signs with your answers, when appropriate. i. the lease is reported as an operating lease. Transactions Operating leasecommences. Lease payment. Record leaseexpense andchanges to assetand liability. ii. the lease is reported as a finance lease. Transactions Finance leasecommences. Amortization ofleased asset. Made annualpayment. Cash Asset 0 0 0 x Cash Asset 0 0 x 0✔ Balance Sheet Noncash Assets 0 x 0✔ 0✔ Contra Assets Balance Sheet Noncash Assets 0 0 x 0 0 x 0✔ 0 x Liabilities Contra Assets 0 x 0✔ 0 x 0 0✔ Liabilities Contributed Capital 0 0 x 0 x 0 x Contributed Capital Earned Capital 0 0 x 0 x 0✔ 0 Revenues Earned Capital 0 0✔ 0 x 0 0✔ 0✔ Revenues Income Statement Expenses 0 0 x 0 x 0 Income Statement Net Income Expenses 0 0 x 0 x 0 0✔ 0 x Net Income 0✔ 0 x