Refer to the lease details in Problem 14-11A. Assume that this lease is classified as an operating lease instead of a finance lease.

Required

1. Prepare the January 1 journal entry at the start of the lease to record any asset or liability.

2. Prepare the January 1 journal entry to record the first $18,000 cash lease payment.

3. Prepare the December 31 journal entry to record amortization at the end of (a) Year 1, (b) Year 2, and (c) Year 3.

4. Prepare the December 31 journal entry to record the $18,000 cash lease payment at the end of (a) Year 1 and (b) Year 2.

Data from Problem 14-11A

On January 1, Rogers (lessee) signs a three-year lease for machinery that is accounted for as a finance lease. The lease requires three $18,000 lease payments (the first at the beginning of the lease and the remaining two at December 31 of Year 1 and Year 2). The present value of the three annual lease payments is $51,000, using a 6.003% interest rate. The lease payment schedule follows.

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Payments (C) (B) (A) (D) (E) Credit Debit Debit Ending Balance Lease Liability = Cash Lease of Lease Liability (A) – (C) Interest on Beginning Balance Lease Liability + of Lease Liability 6.003% x (A) $51,000 33,000 (D) – (B) Date Payment Jan. 1, Year 1 Dec. 31, Year 1... Dec. 31, Year 2.. S18,000 $18,000 18,000 18,000 $33,000 16,981 16,019 $1,981 1,019 16,981 16,981 $3,000 $51,000 $54,000