To raise working capital, ABC Company sold its storage building to Best Bank on January 1, 2021, for $950,000 and immediately leased the building back. The operating lease is for the next 10 years of the building’s estimated 20-year remaining useful life. The building has a fair value of $950,000 and a book value of $660,000 (its original cost was $1,000,000). The annual lease payments of $120,000 are payable to Best Bank each December 31, beginning from December 31, 2021. The lease has an implicit rate of 8%. Let's assume that both ABC Company and Best Bank use the straight-line depreciation method for fixed assets with zero residual value. Information of Time Value (i) present value of an ordinary annuity of $1 (n=10, i=8%) = 6.71008 (ii) present value of an annuity due of $1 (n=10, i=8%) = 7.24689 (iii) present value of $1 (n=10, i=8%) = 0.46319 Required: Prepare the appropriate entries for ABC Company on January 1, 2021 and December 31, 2021, to record the transaction and necessary adjustments. (Round to the nearest dollar) Prepare the appropriate entries for Best Bank on January 1, 2021 and December 31, 2021, to record the transaction and necessary adjustments. (Round to the nearest dollar)
To raise
Information of Time Value
(i) present value of an ordinary annuity of $1 (n=10, i=8%) = 6.71008
(ii) present value of an annuity due of $1 (n=10, i=8%) = 7.24689
(iii) present value of $1 (n=10, i=8%) = 0.46319
Required:
Prepare the appropriate entries for ABC Company on January 1, 2021 and December 31, 2021, to record the transaction and necessary adjustments. (Round to the nearest dollar)
Prepare the appropriate entries for Best Bank on January 1, 2021 and December 31, 2021, to record the transaction and necessary adjustments. (Round to the nearest dollar)
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