On January 1, 2025, Windsor Co. leased a building to Wildhorse 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 $3,100,000 (unguaranteed). 2. The leased building has a cost of $3,600,000 and was purchased for cash on January 1, 2025. 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 $250,000 per year and are made at the beginning of the year. 5. Wildhorse has an incremental borrowing rate of 9%, and the rate implicit in the lease is unknown to Wildhorse. 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 Windsor should make in 2025. (List all debit entries before credit entries. Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Date Account Titles and Explanation Debit Credit 1/1/26 12/31/25 (To record cost of the building) (To record receipt of lease payment) (To record the recognition of the revenue each period) (To record depreciation expense on the leased asset)
On January 1, 2025, Windsor Co. leased a building to Wildhorse 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 $3,100,000 (unguaranteed). 2. The leased building has a cost of $3,600,000 and was purchased for cash on January 1, 2025. 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 $250,000 per year and are made at the beginning of the year. 5. Wildhorse has an incremental borrowing rate of 9%, and the rate implicit in the lease is unknown to Wildhorse. 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 Windsor should make in 2025. (List all debit entries before credit entries. Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Date Account Titles and Explanation Debit Credit 1/1/26 12/31/25 (To record cost of the building) (To record receipt of lease payment) (To record the recognition of the revenue each period) (To record depreciation expense on the leased asset)
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter20: Accounting For Leases
Section: Chapter Questions
Problem 1E: Determining Type of Lease and Subsequent Accounting On January 1, 2019, Caswell Company signs a...
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Transcribed Image Text:On January 1, 2025, Windsor Co. leased a building to Wildhorse 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 $3,100,000
(unguaranteed).
2.
The leased building has a cost of $3,600,000 and was purchased for cash on January 1, 2025.
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 $250,000 per year and are made at the beginning of the year.
5.
Wildhorse has an incremental borrowing rate of 9%, and the rate implicit in the lease is unknown to Wildhorse.
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 Windsor should make in 2025. (List all debit entries before credit entries. Credit account titles are
automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem. If no
entry is required, select "No Entry" for the account titles and enter O for the amounts.)
Date
Account Titles and Explanation
Debit
Credit
1/1/26
12/31/25
(To record cost of the building)
(To record receipt of lease payment)
(To record the recognition of the revenue each period)
(To record depreciation expense on the leased asset)
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