The head office of Pharoah Central Ltd. has operated in the western provinces for almost 50 years. Pharoah Central uses ASPE. In 2004, new offices were constructed on the same site at a cost of $9.90 million. The new building was opened on January 4, 2005, and was expected to be used for 35 years, at which time it would have a value of approximately $2.00 million. In 2020, as competitors began to consider merger strategies among themselves, Pharoah Central felt that the time was right to expand the number of its offices throughout the region. This plan required significant financing and, as a source of cash, Pharoah Central looked into selling the building that housed its head office. On June 29, 2020, Rural Life Insurance Ltd. purchased the building (but not the land) for $8.00 million and immediately entered into a 20-year lease with Pharoah Central to lease back the occupied space. The terms of the lease were as follows.

1.		It is non-cancellable, with an option to purchase the building at the end of the lease for $1 million.
2.		The annual rental is $838,380, payable on June 29 each year, beginning on June 29, 2020.
3.		Rural Life expects to earn a return of 10% on its net investment in the lease, the same as Pharoah Centrals incremental borrowing rate.
4.		Pharoah Central is responsible for maintenance, insurance, and property taxes.
5.		Estimates of useful life and residual value have not changed significantly since 2001. Straight-line depreciation is used by Pharoah Central.

Using time value of money tables, a financial calculator, or Excel functions, calculate the lease payment that Rural Life would require from Pharoah Central. Use Excel and prepare a lease amortization schedule for the first two payments. (Hint: You may find the ROUND formula helpful for rounding in Excel.) Start with an amount rounded to the nearest thousand dollars. (Start the table with an amount rounded to the the nearest thousand dollars. Round answers to 0 decimal places, e.g. 5,275.)

Prepare all entries for Pharoah Central Ltd. from June 29, 2020, to December 31, 2021. Pharoah Central has a calendar year fiscal period. (Credit account titles are automatically indented when the 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. 5,275.)

Assume instead that there was no option to purchase, that $8.00 million represents the buildings fair value on June 29, 2020, and that the lease term was 12 years. Prepare all entries for Pharoah Central from June 29, 2020, to December 31, 2021. (Credit account titles are automatically indented when the 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. 5,275.)

Partial Lease Amortization Schedule Annual Lease Payment Date Interest Amortization Balance 6/29/20 $ 6/29/20 $ 6/29/21 Date Account Titles and Explanation Debit Credit June 29, 2020 (To record sale of building.) June 29, 2020 (To record inception of lease and first lease payment.) Dec. 31, 2020 (To record amortization of deferred gross profit.) Dec 31, 2020 (To record depreciation expense.) Dec 31, 2020 (To record interest.) June 29, 2021 (To record lease payment.) Dec. 31, 2021 (To record amortization of deferred gross profit.) Dec. 31, 2021 (To record depreciation expense.) Dec 31, 2021 (To record interest.) Account Titles and Explanation Debit Credit Date June 29, 2020 (To record sale of building.) June 29, 2020 (To record rent payment.) Dec. 31, 2020 (To record expired rent.) Dec. 31, 2020 (To adjust deferred profit.) June 29, 2021 (To record expired rent.) June 29, 2021 (To record rent payment.) Dec. 31, 2021 (To record expired rent.) Dec. 31, 2021 (To adjust deferred profit.) Partial Lease Amortization Schedule Annual Lease Payment Date Interest Amortization Balance 6/29/20 $ 6/29/20 $ 6/29/21 Date Account Titles and Explanation Debit Credit June 29, 2020 (To record sale of building.) June 29, 2020 (To record inception of lease and first lease payment.) Dec. 31, 2020 (To record amortization of deferred gross profit.) Dec 31, 2020 (To record depreciation expense.) Dec 31, 2020 (To record interest.) June 29, 2021 (To record lease payment.) Dec. 31, 2021 (To record amortization of deferred gross profit.) Dec. 31, 2021 (To record depreciation expense.) Dec 31, 2021 (To record interest.) Account Titles and Explanation Debit Credit Date June 29, 2020 (To record sale of building.) June 29, 2020 (To record rent payment.) Dec. 31, 2020 (To record expired rent.) Dec. 31, 2020 (To adjust deferred profit.) June 29, 2021 (To record expired rent.) June 29, 2021 (To record rent payment.) Dec. 31, 2021 (To record expired rent.) Dec. 31, 2021 (To adjust deferred profit.)