Problem 2

Hood leased equipment from Rowe under a two-year operating lease. Rowe routinely finances equipment for other firms at an annual interest rate of 4%. The contract calls for four rent payments of $10,000 each, payable semiannually, on June 30 and December 31 each year. The equipment was acquired by Rowe at a cost of $100,000 and was expected to have a useful life of five years with no residual value. Both firms record amortization and depreciation annually.

Required:

Prepare the appropriate journal entries for both lessee and lessor from the beginning of the lease through December 31 of 2021.