Problem 21-05

In 2019, Sarasota Trucking Company negotiated and closed a long-term lease contract for newly constructed truck terminals and freight storage facilities. The buildings were erected to the companys specifications on land owned by the company. On January 1, 2020, Sarasota Trucking took possession of the lease properties. Although the terminals have a composite useful life of 40 years, the non-cancelable lease runs for 20 years from January 1, 2020, with a bargain purchase option available upon expiration of the lease. The 20-year lease is effective for the period January 1, 2020, through December 31, 2039. Rental payments of $936,000 are payable to the lessor on January 1 of each of the first 10 years of the lease term. Advance rental payments of $374,400 are due on January 1 for each of the last 10 years of the lease. The company has an option to purchase all of these leased facilities for $1 on December 31, 2039. The lease was negotiated to assure the lessor a 6% rate of return. Selected present value factors are as follows.

Periods		For an Ordinary Annuity of $1 at 6%			For $1 at 6%
1		0.943396			0.943396
2		1.833393			0.889996
8		6.209794			0.627412
9		6.801692			0.591898
10		7.360087			0.558395
19		11.158116			0.330513
20		11.469921			0.311805

Prepare a schedule to compute for Sarasota Trucking the present value of the terminal facilities and related obligation at January 1, 2020. (Round answers to 0 decimal places, e.g. 125.)

SARASOTA TRUCKING COMPANY Schedule to Compute the Discounted Present Value of Terminal Facilities and the Related Obligation January 1, 2020
Present value of first 10 payments:
Immediate payment		$enter a dollar amount
Present value of an ordinary annuity		enter a dollar amount		$enter a total of the two previous amounts
Present value of last 10 payments:
First payment		enter a dollar amount
Present value of an ordinary annuity		enter a dollar amount
Present value of last 10 payments		enter a total of the two previous amounts
Discount to January 1, 2020				enter a dollar amount
Discounted present value of terminal facilities and related obligation				$enter a total of the two previous amounts

Assuming that the present value of terminal facilities and related obligation at January 1, 2020, was $8,933,430, prepare journal entries for Sarasota Trucking to record the following: (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 125.)

(1)		Cash payment to the lessor on January 1, 2022.
(2)		Amortization of the cost of the leased properties for 2022, using the straight-line method and assuming a zero salvage value.
(3)		Accrual of interest expense at December 31, 2022.

No.	Account Titles and Explanation	Debit	Credit
1.	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount
2.	enter an account title To record annual amortization expense on leased assets	enter a debit amount	enter a credit amount
	enter an account title To record annual amortization expense on leased assets	enter a debit amount	enter a credit amount
	(To record annual amortization expense on leased assets.)
3.	enter an account title To record interest accrual on outstanding debt	enter a debit amount	enter a credit amount
	enter an account title To record interest accrual on outstanding debt	enter a debit amount	enter a credit amount
	(To record interest accrual on outstanding debt.)