On January 3, 2008, Aspen Inc. sold a building with a book value of $2,100,000 to Spruce Industries for $2,025,040. Aspen immediately entered into a leasing agreement wherein Aspen would lease the building back for an annual payment of $320,000. The term of the lease is 10 years, the expected remaining useful life of the building. The first annual lease payment is to be made immediately, and future payments will be made on January 1 of each succeeding year. Spruce’s implicit interest rate is 12%.

Instructions:

1. Prepare the journal entries that both Aspen and Spruce should make on January 3, 2008, relating to this sale-leaseback transaction.

2. Prepare the journal entries that both parties should make at the end of 2008 to accrue interest and to amortize the leased building.