E20.17B (LO 3,4) (Accounting for an Operating Lease) On January 1, 2025, Fairfield Co. leased a building to Fremantle Inc. The relevant information related to the lease is as follows. 1. The lease arrangement is for 20 years. The building is expected to have a residual value at the end of the lease of $10,000,000 (unguaranteed). 2. The leased building has a cost of $21,000,000 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 $1,778,000 per year and are made at the beginning of the year. 5. Fairfield has an incremental borrowing rate of 8%, and the rate implicit in the lease is unknown to Fremantle. 6. Both the lessor and the lessee are on a calendar-year basis. Instructions (Round all numbers to the nearest dollar.) a. Prepare the journal entries that Fairfield should make in 2025. b. Prepare the journal entries that Fremantle should make in 2025. c. If Fremantle paid $50,000 to a real estate broker on January 1, 2025, as a fee for finding the lessor, how much should Fremantle report as an expense for this item in 2025?

E20.17B (LO 3,4) (Accounting for an Operating Lease) On January 1, 2025, Fairfield Co. leased a building to Fremantle Inc. The relevant information related to the lease is as follows. 1. The lease arrangement is for 20 years. The building is expected to have a residual value at the end of the lease of $10,000,000 (unguaranteed). 2. The leased building has a cost of $21,000,000 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 $1,778,000 per year and are made at the beginning of the year. 5. Fairfield has an incremental borrowing rate of 8%, and the rate implicit in the lease is unknown to Fremantle. 6. Both the lessor and the lessee are on a calendar-year basis. Instructions (Round all numbers to the nearest dollar.) a. Prepare the journal entries that Fairfield should make in 2025. b. Prepare the journal entries that Fremantle should make in 2025. c. If Fremantle paid $50,000 to a real estate broker on January 1, 2025, as a fee for finding the lessor, how much should Fremantle report as an expense for this item in 2025?

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 9RE: Use the information in RE20-3. Prepare the journal entries that Richie Company (the lessor) would...

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Use the information in RE20-3. Prepare the journal entries that Richie Company (the lessor) would make in the first year of the lease assuming the lease is classified as a sales-type lease. Assume that the lessee is required to make payments on December 31 each year. Also assume that Richie had purchased the equipment at a cost of 200,000.
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 caiculation purposes, use 5 decimal places as displayed in the factor table provided.) Prepare the journal entries that Windsor should make in 2025. (List oll debit entries before credit entries. Credit account…
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