On January 1, 2020, Metlock Co. leased a building to Ivanhoe Inc. The relevant information related to the lease is as follows.1. The lease arrangement is for 10 years. The building is expected to have a residual value at the end of the lease of $3,000,000 (unguaranteed).2. The leased building has a cost of $3,500,000 and was purchased for cash on January 1, 2020.3. The building is depreciated on a straight-line basis. Its estimated economic life is 50 years with no salvage value.4. Lease payments are $270,000 per year and are made at the beginning of the year.5. Ivanhoe has an incremental borrowing rate of 9%, and the rate implicit in the lease is unknown to Ivanhoe.6. Both the lessor and the lessee are on a calendar-year basis.Click here to view factor tables.(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)(a) Prepare the journal entries that Metlock should make in 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.)

Date Account tittles Debit ($) Credit ($) 01-01-20 Building A/c 3,500,000 To Bank A/c…

Answered: On January 1, 2020, Metlock Co. leased…

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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On January 1, 2020, Metlock Co. leased a building to Ivanhoe Inc. The relevant information related to the lease is as follows.

1.		The lease arrangement is for 10 years. The building is expected to have a residual value at the end of the lease of $3,000,000 (unguaranteed).
2.		The leased building has a cost of $3,500,000 and was purchased for cash on January 1, 2020.
3.		The building is depreciated on a straight-line basis. Its estimated economic life is 50 years with no salvage value.
4.		Lease payments are $270,000 per year and are made at the beginning of the year.
5.		Ivanhoe has an incremental borrowing rate of 9%, and the rate implicit in the lease is unknown to Ivanhoe.
6.		Both the lessor and the lessee are on a calendar-year basis.

Click here to view factor tables.
(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

(a)

Prepare the journal entries that Metlock should make in 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.)

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