1. United Company leases an office space in a downtown building. This qualifies as an operating lease. United pays $30,000 in advance for rent every quarter. Record journal entries for United for the following:
a. United pays $30,000 for the last quarter (three months) of the year on October 1.
b. Rent expense on October 31
c. Rent expense on November 30
d. Rent expense on December 31
2. Ralph Corporation agreed to lease a piece of equipment to Amy Company on January 1, 20X4. The following info relates to the lease:
◦ The lease term is five years, at the end of which time the equipment will revert back to Ralph. The life of the equipment is six years.
◦ The fair value of the equipment is $500,000.
◦ Payments of $115,952 will be due at the beginning of the year, with the first payment due at lease signing.
◦ Amy’s incremental borrowing rate is 8 percent.
Prepare the following journal entries for Amy.
a. Record the capital lease.
b. Record the first payment on 1/1/X4.
c. Record depreciation on the equipment on 12/31/X4.
d. Record interest expense on 12/31/X4.
e. Record the second payment on 1/1/X6.