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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:
- Classify the lease for the lessee, MPK.
- 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)?
- Prepare the journal entries for MPK in 2020 and 2021. Round your answers to the nearest whole dollar amounts.
- Prepare the journal entries for Wilson Corporation in 2020 and 2021. Round your answers to the nearest whole dollar amounts.
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