On January 1,2016,Wellburn Corporation leased an asset from Tabitha Company.The asset originally cost Tabitha $300,000.The lease agreement is an operating lease that calls for four annual payments beginning on January 1,2016,in the amount of $36,000.The other three remaining payments will be made on January 1 of each subsequent year.Which of the following journal entries should Tabitha record on January 1,2016?

Question

Quizplus · Accepted Answer

Option A is incorrect because it records revenue instead of lease receivable.
Option C is incorrect because it records the entire lease receivable at once, whereas the problem states that the payments are to be made annually.
Option D is incorrect because it does not record the lease receivable amount correctly.

Option B is the correct entry because it correctly records the lease receivable amount based on the annuity due formula.

On January 1,2016,Wellburn Corporation Leased an Asset from Tabitha Company