Question

On January 1, 2017, Marin Co. leased a building to Headland Inc. The relevant information related to the lease is as follows.

1.		The lease arrangement is for 10 years.
2.		The leased building cost $4,495,000 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 $269,000 per year and are made at the end of the year.
5.		Property tax expense of $90,200 and insurance expense of $10,800 on the building were incurred by Marin in the first year. Payment on these two items was made at the end of the year.
6.		Both the lessor and the lessee are on a calendar-year basis.

(a) Prepare the journal entries that Marin Co. should make in 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
1/1/1712/31/17
1/1/1712/31/17
	(To record receipt of lease payment.)
	(To record depreciation.)
	(To record insurance and property tax.)

(b) Prepare the journal entries that Headland Inc. should make in 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
12/31/17

(c) If Marin paid $29,200 to a real estate broker on January 1, 2017, as a fee for finding the lessee, how much should Marin Co. report as an expense for this item in 2017?

Expense should be reported

$

Answer 1

Answer:

(A) In the books of Marin Co.

Date	Account Titles and Explanation	Debit ($)	Credit ($)
Jan-01	Building	$4,495,000
	Cash		$4,495,000
	(To record purchase of building)
Dec-31	Cash	$269,000
	Lease rental income		$269,000
	(To record receipt of leave payments)
Dec-31	Depreciation expenses (4495000/50)	$89,900
	Accumulated Depreciation - Building		$89,900
	(To record depreciation)
Dec-31	Property Tax expense	$90,200
	Insurance expense	$10,800
	Cash		$101,000
	(To record insurance and property)

(B) In the books of Headland Inc.

Date	Accounts Titles and Explanation	Debit ($)	Credit ($)
Dec-31	Lease Rental expense	$269,000
	Cash		$269,000
	(To record lease payments)

(C)
The fee paid to broker shall be apportioned over the lease term, i.e 10 years
Total fees paid = $29,200
Expense reported in 2017 (29200*/10) = $2,920