Explanation Depreciation expense: Depreciation expense is a non-cash expense, which is recorded on the income statement reflecting the consumption of economic benefits of long-term asset. Amortization: Amortization is a process in which the cost of intangible assets is spread equally over the limited or definite useful life of asset. Lease: This is a contractual agreement between two parties, lessor, the owner of the leased asset and the lessee, the person who leases the asset. In this contract, lessor transfers the right to use his assets to lessee for a stipulated period of time, and lessee pays annual payments to lessor for granting him the right to use the assets. Journal entry : Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically. Debit and credit rules: Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts. Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts. Prepare journal entry for the depreciation expense recorded on December 31, 2014 . Date Account Titles and Explanation Post Ref. Debit ($) Credit ($) 2014 December 31 Depreciation Expense 233,379.08 Accumulated Depreciation 233,379.08 (To record depreciation expense) Table (1) Description: Depreciation Expense is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited. Accumulated Depreciation is a contra-asset account, and contra-asset accounts would have a normal credit balance, hence, the account is credited. Working Notes: Prepare depreciation and amortization schedule . Table (2) Computations: Book value of servers on January 1, 2013: Step 1: Create a new spreadsheet, save it, and insert the data related to the lease, as shown in Figure (1). Figure (1) Step 2: Select cell B10 and click the function button ( f x ) to insert PV function. Step 3: Insert all the values “Rate”, “Nper”, “Pmt”, and “Fv” values in the respective fields of the PV function window. Step 4: Click the OK button of the PV function window, to view the present value of lease payments as $1,166,895.38, on the cell B10 as shown in Figure (2). Figure (2) Book value of servers on January 1, 2014 to 2017: Book value of servers } = { Book value of the previous year– Depreciation expense for the previous year } Depreciation expense recorded on December 31, 2013 to 2017: Depreciation expense } = Beginning book value on January1 Useful life = $1,166,895