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Sales Lease Back : Question 5: Not a sale: On January 1, 2017, Cherry Inc. (CI), the seller-lessee, sold its office building to Rose Inc.

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Sales Lease Back : Question 5: Not a sale: On January 1, 2017, Cherry Inc. (CI), the seller-lessee, sold its office building to Rose Inc. (RI), the buyer- lessor, for $2,000,000 cash. On that date, CI also entered into a lease agreement with RI to rent the land and buildings for a 10-year period for $250,000 per year, payable on December 31 each year. Other pertinent information follows: The lease includes a clause in which Cl must repurchase the land and buildings from RI at the end of the lease term for $2,400,000. The book value of the land and building at time of sale were $800,000 and $700,000, respectively. . The remaining useful life of the building is 30 years. Its estimated residual value at that time is SO. The $2,000,000 sales price was the fair market value at the time of sale and the lease payment reflected market rents. . The implicit rate in the lease is approximately 13.56% and Cl knows this. . Both companies' year ends are December 31. Both companies only make accruals at year end. Required: Prepare the journal entries for the sale and lease for CI, the seller-lessee, at the commencement of the lease (January 1, 2017) and at December 31, 2017

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