On January 1, 2019, Caswell Company signs a 10-year cancelable (at the option of either party) agreement to lease a storage building from Wake Company. The following information pertains to this lease agreement: 1. The agreement requires rental payments of $100,000 at the beginning of each year. 2. The cost and fair value of the building on January 1, 2019, is $2 million. The storage building has not been specialized for Caswell. 3. The building has an estimated economic life of 50 years, with no residual value. Caswell depreciates similar buildings according to the straight-line method. 4. The lease does not contain a renewable option clause. At the termination of the lease, the building reverts to the lessor. 5. Caswell’s incremental borrowing rate is 14% per year. Wake set the annual rental to ensure a 16% rate of return (the loss in service value anticipated for the term of the lease). Caswell knows the implicit interest rate. 6. Executory costs of $7,000 annually, related to taxes on the property, are paid by Caswell directly to the taxing authority on Dec. 31 of each year. Required: 1. Prepare appropriate journal entries on the lessee’s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2019 and 2020. GENERAL JOURNAL Score: 105/113 DATE ACCOUNT TITLE DEBIT CREDIT 1 Jan 1 Right-of Use Asset ? 2 Lease Liability ? 3 Jan 1 Lease Liability 100,000 4 Cash 100,000 5 Dec 31 Lease Expense 100,000 6 Right-of Use Asset ? 7 Lease Liability ? 8 Dec 31 Tax Expense 7,000 9 Cash 7,000 GENERAL JOURNAL DATE ACCOUNT TITLE DEBIT CREDIT 1 Jan 1 Lease Liability 100,000 2 Cash 100,000 3 Dec 31 Lease Expense 100,000 4 Lease Liability ? 5 Cash ? 6 Dec 31 Tax Expense 7,000 7 Cash 7,000 I need to know what is the debit and credit amount for the 1st and 3rd transaction in the first year. I need to know what the credit amount is for the 2nd transaction in the 2nd year.

On January 1, 2019, Caswell Company signs a 10-year cancelable (at the option of either party) agreement to lease a storage building from Wake Company. The following information pertains to this lease agreement: 1. The agreement requires rental payments of $100,000 at the beginning of each year. 2. The cost and fair value of the building on January 1, 2019, is $2 million. The storage building has not been specialized for Caswell. 3. The building has an estimated economic life of 50 years, with no residual value. Caswell depreciates similar buildings according to the straight-line method. 4. The lease does not contain a renewable option clause. At the termination of the lease, the building reverts to the lessor. 5. Caswell’s incremental borrowing rate is 14% per year. Wake set the annual rental to ensure a 16% rate of return (the loss in service value anticipated for the term of the lease). Caswell knows the implicit interest rate. 6. Executory costs of $7,000 annually, related to taxes on the property, are paid by Caswell directly to the taxing authority on Dec. 31 of each year. Required: 1. Prepare appropriate journal entries on the lessee’s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2019 and 2020. GENERAL JOURNAL Score: 105/113 DATE ACCOUNT TITLE DEBIT CREDIT 1 Jan 1 Right-of Use Asset ? 2 Lease Liability ? 3 Jan 1 Lease Liability 100,000 4 Cash 100,000 5 Dec 31 Lease Expense 100,000 6 Right-of Use Asset ? 7 Lease Liability ? 8 Dec 31 Tax Expense 7,000 9 Cash 7,000 GENERAL JOURNAL DATE ACCOUNT TITLE DEBIT CREDIT 1 Jan 1 Lease Liability 100,000 2 Cash 100,000 3 Dec 31 Lease Expense 100,000 4 Lease Liability ? 5 Cash ? 6 Dec 31 Tax Expense 7,000 7 Cash 7,000 I need to know what is the debit and credit amount for the 1st and 3rd transaction in the first year. I need to know what the credit amount is for the 2nd transaction in the 2nd year.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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1.	The agreement requires rental payments of $100,000 at the beginning of each year.
2.	The cost and fair value of the building on January 1, 2019, is $2 million. The storage building has not been specialized for Caswell.
3.	The building has an estimated economic life of 50 years, with no residual value. Caswell depreciates similar buildings according to the straight-line method.
4.	The lease does not contain a renewable option clause. At the termination of the lease, the building reverts to the lessor.
5.	Caswell’s incremental borrowing rate is 14% per year. Wake set the annual rental to ensure a 16% rate of return (the loss in service value anticipated for the term of the lease). Caswell knows the implicit interest rate.
6.	Executory costs of $7,000 annually, related to taxes on the property, are paid by Caswell directly to the taxing authority on Dec. 31 of each year.

Required:

1.	Prepare appropriate journal entries on the lessee’s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2019 and 2020.

GENERAL JOURNAL

Score: 105/113

	DATE	ACCOUNT TITLE	DEBIT	CREDIT
1	Jan 1	Right-of Use Asset	?
2		Lease Liability		?
3	Jan 1	Lease Liability	100,000
4		Cash		100,000
5	Dec 31	Lease Expense	100,000
6		Right-of Use Asset		?
7		Lease Liability		?
8	Dec 31	Tax Expense	7,000
9		Cash		7,000

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	DEBIT	CREDIT
1	Jan 1	Lease Liability	100,000
2		Cash		100,000
3	Dec 31	Lease Expense	100,000
4		Lease Liability		?
5		Cash		?
6	Dec 31	Tax Expense	7,000
7		Cash		7,000

I need to know what is the debit and credit amount for the 1st and 3rd transaction in the first year.

I need to know what the credit amount is for the 2nd transaction in the 2nd year.

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