Part 1. On January 1, 2000, Liberty Co. entered into a 12-year lease on a building. The lease con- rac lequires (1) annual (prepaid) rental payments of $26,400 each January 1 throughout the life of e ease an U) or the lessee to pay for all additions and improvements to the leased property. On anuary , 7, Liberty decides to sublease the space to Moberly Co. for the remaining five years of the lease—Moberly pays $30,000 to Liberty for the right to sublease and agrees to assume the ob¬ ligation to pay the $26,400 annual rent to the building owner beginning January 1, 2007. After taking P°S

Required Prepare entries for Moberly to record

(a) its payment to Liberty for the right to sublease the build¬ ing space,

(b) its payment of the 2007 annual rent to the building owner, and

(c) its payment for the office improvements. Prepare Moberly’s year-end adjusting entries required on December 31, 2007, to

(a) amortize the $30,000 cost of the sublease,

(e) amortize the office improvements, and (/) record rent expense.

Part 2. On February 19 of the current year. Rock Chalk Co. pays $4,450,000 for land estimated to contain 5 million tons of recoverable ore. It installs machinery costing $200,000 that has a 16-year life and no salvage value and is capable of mining the ore deposit in 12 years. The machinery is paid for on March 21, eleven days before mining operations begin. The company removes and sells 352,000 tons of ore during its first nine months of operations. Depreciation of the machinery is in proportion to the mine’s depletion as the machinery will be abandoned after the ore is mined.

Required Preparation Component Prepare entries to record

(a) the purchase of the land,

(b) the cost and installation of machinery,

(c) the first nine months’ depletion assuming the land has a net salvage value of zero after the ore is mined, and

(d) the first nine months’ depreciation on machinery.

Analysis Component Describe both the similarities and differences in amortization, depletion, and depreciation.