On July 1, 2012, Falk Company signed a contract to lease space in a building for

Question

On July 1, 2012, Falk Company signed a contract to lease space in a building for 20 years. The lease contract calls for annual (prepaid) rental payments of $80,000 on each July 1 throughout the life of the lease and for the lessee to pay for all additions and improvements to the leased property. On June 25, 2017, Falk decides to sublease the space to Ryan & Associates for the remaining 15 years of the lease-Ryan pays $195,000 to Falk for the right to sublease and it agrees to assume the obligation to pay the $80,000 annual rent to the building owner beginning July 1, 2017. After taking possession of the leased space, Ryan pays for improving the office portion of the leased space at a $495,000 cost. The improvements are paid for by Ryan on July 5, 2017, and are estimated to have a useful life equal to the 15 years remaining in the life of the building Problem 8-8A Part 1 Required: 1. Prepare entries for Ryan to record (a) its payment to Falk for the right to sublease the building space, (b) its payment of the 2017 annual rent to the building owner, and (c) its payment for the office improvements.

Explanation / Answer

SOLUTION

(1)

(2)

Date Account titles and Explanation Debit ($) Credit ($) June 25 Leasehold 195,000 Cash 195,000 (To record the payment to Falk for the right to sublease the building space) July 1 Prepaid rent 80,000 Cash 80,000 (To record the payment of annual rent) July 5 Leasehold improvements 495,000 Cash 495,000 (To record the payment for the office improvements)

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.