Question

Lessee Corp. agreed to lease property from Lessor Corp. effective January 1, 2018, for an annual payment of $30,877, beginning January 1, 2018. The property is made up of land with a fair value of $120,000 and a two-storey office building with a fair value of $250,000 and a useful life of 25 years with no residual value. The implicit interest rate is 7.5%, the lease term is 25 years, and title to the property is transferred to Lessee at the end of the lease term.

Required:

1) Prepare the required entries made by Lessee Corp. on January 1, 2018 and at its year end of December 31, 2018. Both Lessee and Lessor use ASPE. Round all amounts to the nearest dollar.

Answer 1

Date	Account Description	Debit	Credit
1-Jan-18	Land	120,000.00
	Buildings	250,000.00
	Lease Payable		339,123.00
	Cash		30,877.00
	(Being Lease Recorded)
31-Dec-18	Interest Expesnes	25,434
	Lease Payable	5,443
	Cash		30,877.00
31-Dec-18	Depreciation	10,000.00
	Accumulated Depreciation		10,000.00
	(Being Building Depreciated)

Please Note:

Depreciation on Building is provided on Streight line Basis

No Depreciation Provided for the Land

Amortization Table
Year	Lease Rental	Interest Expesnes	Lease Payable
0	30,877	-	339,123
1	30,877	25,434	333,680
2	30,877	25,026	327,829
3	30,877	24,587	321,539

Year	Lease Rental	Discounting Factor	Present Value
0	30,877	1	30,877
1	30,877	0.93023	28,723
2	30,877	0.86533	26,719
3	30,877	0.80496	24,855
4	30,877	0.7488	23,121
5	30,877	0.69656	21,508
6	30,877	0.64796	20,007
7	30,877	0.60275	18,611
8	30,877	0.5607	17,313
9	30,877	0.52158	16,105
10	30,877	0.48519	14,981
11	30,877	0.45134	13,936
12	30,877	0.41985	12,964
13	30,877	0.39056	12,059
14	30,877	0.36331	11,218
15	30,877	0.33797	10,435
16	30,877	0.31439	9,707
17	30,877	0.29245	9,030
18	30,877	0.27205	8,400
19	30,877	0.25307	7,814
20	30,877	0.23541	7,269
21	30,877	0.21899	6,762
22	30,877	0.20371	6,290
23	30,877	0.1895	5,853.19
24	30,877	0.17628	5,444.00
			370,000

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