Question

Use the information for Rick Kleckner Corporation from BE21-3. Assume that at December 31, 2017, Kleckner made an adjusting entry to accrue interest expense of \(29,530 on the lease. Prepare Kleckner’s January 1, 2018, journal entry to record the second lease payment of \)53,920.

Rick Kleckner Corporation recorded a capital lease at \(300,000 on January 1, 2017. The interest rate is 12%. Kleckner Corporation made the first lease payment of \)53,920 on January 1, 2017. The lease requires eight annual payments. The equipment has a useful life of 8 years with no salvage value. Prepare Kleckner Corporation’s December 31, 2017, adjusting entries.

Short answer

Interest payable is $29,530.

Step-by-step solution

Meaning of Lease Liability

Lease liability of any individual suggests the commitment of such individual, as a tenant, to pay lease or other instalment amounts under a rent of real or individual property, which is accounted for as a rent liability on such person's solidified balance sheet in understanding with GAAP.

Preparing Journal Entries

Date	Particular	Debit ($)	Credit ($)
	Interest Payable	29,530
	Lease Liability	24,390
	Cash		53,920

Working Notes:

$\begin{array}{rcl}\mathrm{Interest}\mathrm{payable}& =& \left(\mathrm{Capital}\mathrm{lease}-\mathrm{Lease}\mathrm{payments}\right)\times \mathrm{Interest}\mathrm{rate}\\ & =& \left(\$300,000-\$53,920\right)\times 12\%\\ & =& \$29,530\end{array}$