On January 1, 2017, Marin Co. leased a building to Headland Inc. The relevant in

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 $4,165,000 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 $275,500 per year and are made at the end of the year. 5. Property tax expense of $76,900 and insurance expense of $9,000 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 (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 $28,000 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 $

Explanation / Answer

Part A

Entries for Marin Co. are as follows :

Part B

Entries for Headland Inc. are as follows :

Part C

The real estate broker’s fee should be capitalized and amortized equally over the 10-year period. As a result, real estate fee expense of $2,800 ($28,000 ÷ 10) should be reported in each period.

Date account titles and explanation debit credit January 1 2017 building 4165000 Cash 4165000 December 31 2017 cash 275500 Rental revenue 275500 December 31 2017 depreciation expense 83300 Accumulated depreciation - building (4165000/50) 83300 December 31 2017 property tax expense 76900 Insurance expense 9000 Cash 85900

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