On January 1, Seller-Lessee sold a building to Buyer-Lessor for $200,000. The building had originally cost Seller-Lessee

Question:

On January 1, Seller-Lessee sold a building to Buyer-Lessor for $200,000. The building had originally cost Seller-Lessee $230,000 and had accumulated depreciation of $70,000 on the date of the sale. On the day of the sale, Seller-Lessee leased the building back from Buyer-Lessor. The lease calls for annual lease payments of $23,750 at the end of each year for the next 25 years. The interest rate implicit in the lease is 11%. On January 1, the building had a fair value of $200,000 and a remaining useful life of 25 years (with zero expected ). Make all lease-related journal entries necessary for the year on the books of
(1) Seller-Lessee and
(2) Buyer-Lessor.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...