On January 1, 2012, Hanks Company leased a copy machine with an integrated laser printer from Officeneeds, Inc. The five-year lease is noncancelable and requires monthly payments of $200 at the end of each month, with the first payment due on January 31, 2012. At the end of five years, Hanks will own the equipment. The present value of the lease payments at the beginning of the lease is determined to be $9,413.
1. Prepare journal entries to record:
a. The lease agreement on January 1, 2012.
b. The first lease payment on January 31, 2012, assuming that $78 of the $200 payment is interest.
2. Now assume that the lease expires after one year at which time a new lease can be negotiated or Hanks can return the equipment to Officeneeds. Prepare any journal entries relating to the lease that would be required on January 1 and January 31, 2012.