Question 2

Not complete

Marked out of 17.00

Flag question

Question text

On January 1, 2017, Morris Company sells land to Lopez Corporation for 6,000,000, and immediately leases the land back. The following information relates to this transaction:

1. The term of the noncancelable lease is 20 years and the title transfers to Morris Company at the end of the lease term.

2. The land has a cost basis of 5,040,000 to Morris.

3. The lease agreement calls for equal rental payments of 611,112 at the end of each year.

4. The land has a fair market value of 6,000,000 on January 1, 2017.

5. The incremental borrowing rate of Morris Company is 10%. Morris is aware that Lopez Corporation set the annual rentals to ensure a rate of return of 8%.

6. Morris Company pays all executory costs which total 255,000 in 2017.

7. Collectibility of the rentals is reasonably predictable, and there are no important uncertainties surrounding the cost yet to be insured by the lessor

Prepare the journal entries for the entire year 2017 on the books of Morris Company to reflect the above sale and lease transactions (include a partial amortization schedule and round all amounts to the nearest dollar.)

Morris Company(Lease)
January 1, 2011
Cash

Land
Leased Land Under Capital Leases
Lease Liability
Throughout 2017
Executory Costs	5,040,000131,1125,868,888611,112255,000960,000480,0006,000,00048,000
Accounts Payable an Cash

December 31, 2017
Unearned Profit on Sale-Leaseback
Revenue from Sale-Leaseback
Interest Expense
Lease Liability
Cash