On 1 July 2021, One Ltd Leased a Network Server

question 2

Short Answer

On 1 July 2021, One Ltd leased a network server from Short Ltd. The server had cost Short Ltd $32 000 on the same day. The lease agreement cost Short Ltd $1390 to set up and included the following: $\begin{array}{lr}\text {Lease term }&15 \text { years: }\\\text {Estimated economic life of the network server }&10 \text { years: }\\\text { The lease is cancellable}&\\\text { Annual rental payment (in arrears)}&\$6,500\\\text {Residual value at end of lease term }&\$24,000\\\text {Residual guarantee by One Ltd }&\$0\\\text {Interest rate implicit in the lease }&8\%\\\end{array}$
The journal entry recorded by the lessor to recognise the initial direct costs incurred would be:
a. $\begin{array}{lcc}\text { DR } & \text { Lease expense } \quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad& \$ 1390 \\\text { CR } & \text { Cash } && \$ 1390\end{array}$

b. $\begin{array}{lcc}\text { DR } & \text { Deferred initial direct costs - equipment } & \$ 1390 \\\text { CR } & \text { Cash } && \$ 1390\end{array}$

c. $\begin{array}{lcc}\text { DR } &\text { Lease expense } & \$ 1390 \\\text { CR } &\text { Deferred initial direct costs - equipment }&& \$ 1390\end{array}$

d. $\begin{array}{lcc}\text { DR } &\text { Cash }& \$ 1390 \\\text { CR } &\text { Deferred initial direct costs - equipment }&& \$ 1390\end{array}$

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Definitions:

Job Security

The probability that an individual will retain their job; a secure job is one with a low risk of involuntary termination.

Human Resource Practices

Activities and strategies implemented by an organization's human resources department to manage employees, such as recruitment, training, and performance appraisal.

Diverse Workforce

A labor pool consisting of workers with varying characteristics including but not limited to race, gender, ethnicity, age, and sexual orientation.

Human Resources

The department within an organization that focuses on recruitment, management, and providing direction for people who work in the organization; also refers to the employees themselves.