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On July 1, 2008, Falk Company signed a contract to lease space in a building for 15 years. The lease contract calls for annual (prepaid)

On July 1, 2008, Falk Company signed a contract to lease space in a building for 15 years. The lease contract calls for annual (prepaid) rental payments of $80,000 on each July 1 throughout the life of the lease and for the lessee to pay for all additions and improvements to the leased property. On June 25, 2013, Falk decides to sublease the space to Ryan & Associates for the remaining 10 years of the leaseRyan pays $200,000 to Falk for the right to sublease and it agrees to assume the obligation to pay the $80,000 annual rent to the building owner beginning July 1, 2013. After taking possession of the leased space, Ryan pays for improving the office portion of the leased space at a $130,000 cost. The improvements are paid for by Ryan on July 5, 2013, and are estimated to have a useful life equal to the 16 years remaining in the life of the building.

1. PREPARE ENTRY FOR RYAN TO RECORD

(A) ITS PAYMENT TO FALK FOR THE RIGHT TO SUBLEASE THE BUILDING.

JOURNAL ENTRY WORK SHEET/ RECORD THE SUBLEASE FOR $200,000 CASH.
DATE GENERAL JOURNAL DEBIT CREDIT
JUNE 25
(b)

Its payment of the 2013 annual rent to the building owner.

Record the year-end adjusting entry for the amortization expense of the leasehold.
DATE GENERAL JOURNAL DEBIT CREDIT
DEC 31

(C) ITS PAYMENT FOR THE OFFICE IMPROVEMENT.

Record the costs of leasehold improvements of $130,000 cash.
DATE GENERAL JOURNAL DEBIT CREDIT
JULY 05

2. PREPARE RYAN'S YEAR END ADJUSTING ENTRY FOR AMORTIZATION EXPENSE OF THE LEASEHOLD.

(A) TO AMORTIZE $200,000 COST OF SUBLEASE.

Record the year-end adjusting entry for the amortization expense of the leasehold.
DATE GENERAL JOURNAL DEBIT CREDIT
DEC 31

(B) TO AMORTIZE THE OFFICE IMPROVEMENTS.

Record the year-end adjusting entry for the amortization expense of the leasehold improvements
DATE GENERAL JOURNAL DEBIT CREDIT
DEC 31

(C) TO RECORD RENT EXPENSE.

Record the year-end adjusting entry for the rent expense.
DATE GENERAL JOURNAL DEBIT CREDIT
DEC 31

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