Rich Grocery owns the building it uses; it has a current carrying value on January 1, 1998, of $450 000, a 10-year remaining life and no residual value. On this date it was sold to investor Lucky for $500,000 cash. Simultaneously, the two parties executed a 10-year direct financing lease with a 12 percent implicit interest rate; each annual payment is due on December 31 (end of their accounting periods).
Required:
1. Compute the annual payments to be made by Rich to Lucky.
2. Give the entries for the seller-lessee (Rich Grocery) for 1998. Use straight-line depreciation.