Exercise 21-17 (Part Level Submission)

On January 1, 2020, Marin Co. leased a building to Cullumber Inc. The relevant information related to the lease is as follows.

1.		The lease arrangement is for 10 years. The building is expected to have a residual value at the end of the lease of $2,900,000 (unguaranteed).
2.		The leased building has a cost of $3,400,000 and was purchased for cash on January 1, 2020.
3.		The building is depreciated on a straight-line basis. Its estimated economic life is 50 years with no salvage value.
4.		Lease payments are $255,000 per year and are made at the beginning of the year.
5.		Cullumber has an incremental borrowing rate of 8%, and the rate implicit in the lease is unknown to Cullumber.
6.		Both the lessor and the lessee are on a calendar-year basis.

a.

Prepare the journal entries that Nelson should make in 2020.

b.

Prepare the journal entries that Wise should make in 2020.