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Q3. At the beginning of 2020, MPK lease restaurant space from Wilson Corporation under a 10-year lease agreement. The contract calls for annual lease payments

Q3. At the beginning of 2020, MPK lease restaurant space from Wilson Corporation under a 10-year lease agreement. The contract calls for annual lease payments of $25,000 each at the end of each year. The building was acquired by the Wilson, the lessor, at a cost of $300,000 and is expected to have a useful life of 25 years with no residual value for calculating straight-line depreciation. Wilson seeks a 10% return on its lease investments.

Required:

  1. Classify the lease for the lessee, MPK.
  2. What will be the effect of the lease on MPK's earnings for the first year, and on the balance sheet at the end of the year (ignore taxes)?
  3. Prepare the journal entries for MPK in 2020 and 2021. Round your answers to the nearest whole dollar amounts.
  4. Prepare the journal entries for Wilson Corporation in 2020 and 2021. Round your answers to the nearest whole dollar amounts.

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