Question

Exercise 21A-17 a-c On January 1, 2017, Larkspur Co. leased a building to Crane 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 $3,900,000 (unguaranteed). 2. The leased building has a cost of $4,400,000 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. Lease payments are $260,000 per year and are made at the beginning of the year. Crane has an incremental borrowing rate of 5%, and the rate implicit in the lease is unknown to Crane. Both the lessor and the lessee are on a calendar-year basis. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) 4. 5. 6. Prepare the journal entries that Larkspur should make in 2017. (Credit account titles are automatically indented when amount is entered. Do not in manually.) Date Account Titles and Explanation Debit Credit 1/1/17 (To record cost of the building) (To record receipt of lease payment) 12/31/17

Answer 1

Answer :-

Journal entries that Larkspur should make in 2017 are as follows :-

Date	Account Title and Explanation	Debit	Credit
1/1/17	Building	$4,400,000
	Cash		$4,400,000
	( To record cost of the building)
1/1/17	Cash	$260,000
	Unearned lease revenue		$260,000
	(To record receipt of lease payment)
12/31/17	Unearned lease revenue	$260,000
	Leased revenue		$260,000
	(To record revenue of each period)
12/31/17	Depreciation Expenses ($4,400,000 / 50 years )	$88,000
	Accumulated Depreciation - Leased building		$88,000
	(To record depreciation expense)