Lexus Company Rents a Copier from Heavenly Co on January

question 2

Essay

Lexus Company rents a copier from Heavenly Co on January 1, 2017. Under the terms of the agreement, Lexus Company will pay rentals of $7,000 per month for a 6-month period. Lexus Company will make these payments at the beginning of every month, beginning on January 1, 2017. Lexus Company elects to apply the exemption for short-term leases. That is, Lexus Company makes a policy election not to record the lease liability and the right-of-use asset. What journal entry will Lexus Company make each month to record the rental payments?

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Definitions:

Fixed Manufacturing Overhead

The costs that do not change with the level of production, including costs such as rent, insurance, and salaries for management.

Direct Materials

Direct materials are raw materials that are directly traceable to the manufacturing of a specific product and constitute a significant portion of its production cost.

Direct Labor

The labor costs directly tied to the production of goods, including wages of workers actively engaged in manufacturing.

Variable Costs

Costs that change in proportion to the level of production or sales activity.