Question

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

1. The lease arrangement is for 10 years. The building is expected to have a residual value at the end of the lease of $3,100,000 (unguaranteed).

2. The leased building has a cost of $3,600,000 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 $280,000 per year and are made at the beginning of the year.

5. Sunland has an incremental borrowing rate of 6%, and the rate implicit in the lease is unknown to Sunland. 6. Both the lessor and the lessee are on a calendar-year basis.

Prepare the journal entries that Splish Brothers should make in 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit 1/1/17 (To record cost of the building) (To record receipt of lease payment) 12/31/17 (To record the recognition of the revenue each period) (To record depreciation expense on the leased asset)

Prepare the journal entries that Sunland should make in 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275.) Date Account Titles and Explanation Debit Credit 1/1/17 (To record the lease) 1/1/17 (To record lease liability) 12/31/17

If Sunland paid $25,000 to a real estate broker on January 1, 2017, as a fee for finding the lessor, what is the initial measurement of the right-of-use asset? Right-of-use asset $

Answer 1

splish Brother Journal entries in the books of should make in 2017. Debit credit Account Titles and Explanation Date 3600poo - 1117 Building 3,600, Cash (To record cost of the building.) 280,000 280,000 Cash Un-earned lease revenue (To record receipt of lease payment) 12/31/17 un-earned Lease revenue 280,000 280,00 Lease Revenue (To record the recognition of the revenue each period $ 72000 Depreciation Expense Accomulated Depreciation $72,000 (to record depreciation expense of the leased asset) 1 3600,000 Scanned with CamScanner

Journal entries in the books of Sunland make in 2012 Account Tiles and suplanation Debit credit Date 117 $ 2184437 Right aduse Asset Lease Lisability (280,000 x 7.80169) $2184473 to recood the lease) 280,000 Lease Liability Cash (To record lease Liability) 280.000 12/31/17 218,444 Depreciation 218,444 Accumlated Depreciation/Righ of use asset ( To record Depreciation on - leased aset) (Based on year lease period . 2184437/0) 114,266 904437 2131217 114,266 Interest Expense Interest payable (2784437 - 289,000)*6% to record Intexest Expense at Year end.) Scanned with CamScanner

to a real estate If sonland paid $25,000 booker on January 1, 2017 of Initial measurement Brokerage fee the right - ause of asset is - 25000 Initial measurement is 2,84,437 Total Right of use asset $ 2,209437