Question
On January 1, 2017, Nelson Co. leased a building to Wise Inc. The relevant information related to the lease is as follows: The lease arrangement
On January 1, 2017, Nelson Co. leased a building to Wise Inc. The relevant information related to the lease is as follows:
The lease arrangement is for 10 years. The building is expected to have a residual value at the end of the lease of $3,500,000 unguaranteed.
The leased building has a cost of $4,000,000 and was purchased for cash on December 31, 2016.
The building is depreciated on a straight-line basis. Its estimated economic life is 50 years with no salvage value.
Lease payments are $275,000 per year and are made at the beginning of the year.
Wise has an incremental borrowing rate of 8%, and the rate implicit in the lease is unknown to Wise.
Both the lessor and lessee are on a calendar-year basis.
Use the information in the above scenario to prepare the 2017 journal entries for the LESSOR.
1) January 1, 2017 lease commencement
2)January 1, 2017 lease payment
3) December 31, 2017 year end entry
4) December 31, 2017 amortization
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