Question

Jana Kingston Corporation enters into a lease on January 1, 2017, that does not transfer ownership or contain a bargain-purchase option. It covers 3 years of the equipment’s 8-year useful life, and the present value of the minimum lease payments is less than 90% of the fair value of the asset leased. Prepare Jana Kingston’s journal entry to record its January 1, 2017, annual lease payment of $35,000.

Short answer

Rent expense should be debited and the cash account should be credited with the amount of $35,000.

Step-by-step solution

Meaning of Bargain purchase option

A bargain purchase option may be a clause in a rent agreement that grants the tenant to purchase the rented thingfor essentially less than its reasonable market value on the lease's termination date. When this alternative is accessible, the tenant is ordinarily obliged to handle the renting agreement as a finance lease, in which the rented resource is perceived on the lessee's claim balance sheet.

Preparing Journal Entries

Date	Particular	Debit ($)	Credit ($)
	Rent Expense	35,000
	Cash		35,000