Question

please answer b

Exercise 21A-17 a-c (Part Level Submission) On January 1, 2017, Sage Hill Co. leased a building to Oriole Inc. The relevant information related to the lease is as follows. 1The lease arrangement is for 10 years. The building is expected to have a residual value at the end of the lease of $2,800,000 (unguaranteed). 2. The leased building has a cost of $3,300,000 and was purchased for cash on January 1, 2017. 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. Oriole has an incremental borrowing rate of 6 %, and the rate implicit in the lease is unknown to Oriole. 6 Both the lessor and the lessee are on a calendar-year basis.

Answer 1

(b)

Present value of lease liability	= Lease payment x PV (6%,10)
	=270000*7.8017
	$ 2,106,459.00

Date	Accounts Title & Explanation	Dr	Cr
1/1/2017	Right of use asset	$2,106,459
	Lease liability		$2,106,459
	(To record the lease)
1/1/2017	Lease liability	$270,000
	Cash		$270,000
	(To record the lease liability)
12/31/2017	Lease Expense	$270,000
	Lease liability (2106459-270000)*6%		$110,188
	Right of use asset		$159,812
	(To record recognization of lease expense)

Since it is mentioned to answer (b) part only. The same have been answered.

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