On September 15, 2020, Local Camping Limited, the lessee, entered into a 20-year lease with Sullivan Corp. to rent a parcel of land at a rate of $30,000 per year. Both Local and Sullivan use ASPE. The annual rental is due in advance each September 15, beginning in 2020. The land has a current fair value of $195,000. The land reverts to Sullivan at the end of the lease. Local Camping’s incremental borrowing rate and Sullivan’s implicit interest rate are both 8%. 

Instructions 

a. Prepare Local Camping’s required journal entries on September 15, 2020, and at December 31, 2020, its year end. 

b. Explain how and why these entries might differ if Local were leasing equipment instead of land. 

c. Prepare the entries required on Sullivan’s books at September 15, 2020, and at December 31, 2020, its year end.