Question

On January 1, 2017, Concord Co. leased a building to Marigold Inc. The relevant information related to the lease is as follows.

1. The lease arrangement is for 10 years. 2. The leased building cost $4,380,000 and was purchased for cash on January 1, 2017. 3. The building is depreciated on a straight-line basis. Its estimated economic life is 50 years with no salvage value. 4. Lease payments are $284,100 per year and are made at the end of the year. 5. Property tax expense of $89,500 and insurance expense of $10,700 on the building were incurred by Concord in the first year. Payment on these two items was made at the end of the year. 6. Both the lessor and the lessee are on a calendar-year basis. (a) Prepare the journal entries that Concord Co. should make in 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts.) Date Account Titles and Explanation Debit Credit (To record receipt of lease payment.) (To record depreciation.)

Answer 1

Part - (a):

1.

To record entry for purchase of building in cash is:

1 Date Credit | Accounts and Explanation 2 Building 3 01-01-2017 To Cash (To record purchase of building) Debit $4,380,000 $4,380,000 4

2.

To record entry for receipt of payment against lease is:

А Credit Debit $284.100 Date Accounts and Explanation Cash To Lease revenue 12-31-2017 (To record receipt of payment against lease) $284.100

3.

To record entry for depreciation on building is:

11 Date Credit Debit $87.600 Accounts and Explanation 12 Depreciation expenses 13 12-31-2017 To Accumulated depreciation (To record depreciation on building) $87.600 14

Working Note:

Computation of depreciation expense is:

Depreciation expense = Cost of building / Economic life of building

= $4,380,000 / 50

= $87,600

Hence, the depreciation expense is $87,600.

4.

To record entry for expenses of insurance and property is:

Date Debit Credit $89,500 $10.700 18 16 | Accounts and Explanation 17 Property tax expense Insurance expense 19 12-31-2017 To Cash (To record expenses for insurance and 20 property) $100,200

Working Note:

Computation the total value of cash paid is:

Total value of cash paid = Property tax expense + Insurance expense

= $89,500 + $10,700

= $100,200

Hence, the total value of cash paid is $100,200.

Part - (b):

To record entry for expense on rent is:

А Debit | Credit $284.100 Date Accounts and Explanation Rent expense 12-31-2017 To Cash (To record expense for rent) $284.100

Part - (c):

Computation the amount of expense is:

Amount of expense = Fees paid for lease / Life of lease

= $28,700 / 10 years

= $2,870

Hence, the amount of expense is $2,870.