Lessee
Corp. agreed to lease property from Lessor Corp. effective January 1, 2011, for
an annual payment of $23,576.90, beginning January 1, 2011. The property is
made up of land with a fair value of $100,000 and a two-storey office building
with a fair value of $150,000 and a useful life of 20 years. The implicit
interest rate is 8%, the lease term is 20 years, and title to the property is
transferred to Lessee at the end of the lease term. Prepare the required
entries made by Lessee Corp. on January 1, 2011, and at its year end of
December 31, 2011. Both Lessee and Lessor use private enterprise GAAP.
January 1, 2011:
Leased Land............................ 100,000.00
Leased Building........................ 150,000.00
Lease
Obligation................... 250,000.00
Lease Obligation....................... 23,576.90
Cash............................... 23,576.90
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Excel formula =PV(rate,nper,pmt,fv,type)
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Using a financial
calculator:
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PV
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$ ?
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Yields $ 250,000
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I
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8%
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N
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20
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PMT
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$ 23,576.90
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FV
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$ 0
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Type
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1
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December 31, 2011:
Interest Expense........................ 18,113.85
Interest
Payable
[($250,000.00 – $23,576.90) X 8%] 18,113.85
Depreciation Expense - Building......... 7,500.00
Accumulated
Depreciation - Building
($150,000 / 20).............. 7,500.00
