On January 1, 2013, 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, 2013, 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, 2013?

Question

Quizplus · Accepted Answer

Tabitha should record the following journal entry on January 1, 2013:
Lease receivable  = $144,000
Lease revenue      = $144,000
[$36,000 x 4 payments]

Option A is incorrect because it only records the first payment received, but not the lease receivable or the remaining payments. Option C is incorrect because it incorrectly records the full asset cost, rather than just the lease receivable. Option D is incorrect because it records the wrong amount for the lease receivable.

On January 1, 2013, Wellburn Corporation Leased an Asset from Tabitha