On January 1, 2014, Doug Nelson Co. leased a building to Patrick Wise Inc. The r

Question

On January 1, 2014, Doug Nelson Co. leased a building to Patrick Wise Inc. The relevant information related to the lease is as follows.

(a) Prepare the journal entries that Nelson Co. should make in 2014. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date

Account Titles and Explanation

Debit

Credit

1/1/14

12/31/14

(To record receipt of lease payment.)

(To record depreciation.)

(To record insurance and property tax.)

(b) Prepare the journal entries that Wise Inc. should make in 2014. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date

Account Titles and Explanation

Debit

Credit

12/31/14

(c) If Nelson paid $30,180 to a real estate broker on January 1, 2014, as a fee for finding the lessee, how much should be reported as an expense for this item in 2014 by Nelson Co.?

1. The lease arrangement is for 10 years. 2. The leased building cost $4,470,000 and was purchased for cash on January 1, 2014. 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 $261,290 per year and are made at the end of the year. 5. Property tax expense of $87,240 and insurance expense of $10,090 on the building were incurred by Nelson 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.

Explanation / Answer

1)

2)

c)expense paid to real estate broker should be capitalized and amortised over the lease term 10 years

Expense to be reported :30180/10 =$3018

Date Account Debit credit jan 1 2014 Building 4,470,000 cash 4,470,000 [Building purchased] 12/31/14 cash 261,290 rent revenue 261,290 [being lease payment received] 12/31/14 Depreciation expense 89,400 Accumilated depreciation-building 89,400 [depreciation recorded :4470000/50]

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