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

(b) Prepare the journal entries that Wise Inc. should make in 2014.

(c) If Nelson paid $34,310 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 $4,749,000 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 $296,140 per year and are made at the end of the year. 5. Property tax expense of $85,470 and insurance expense of $10,840 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

Answer (a)

Journal Enteries in the book of Nelson Co.

Sl. no. Account Debit Credit

(1) Cash account 296140

To Lease Received 296140

(2) Deprecialtion account 94980

To Building account 94980

(4749000/50=94980)

(3) Property Tax Expenses 85470

To Cash 85470

(4) Insurance Expenses 10840

To Cash 10840

(5) Profit & Loss account 191290

To Depreciation 94980

To Property Tax 85470

To Insurance Expenses 10840

  

Lease received 296140

To Profit & Loss A/c 296140

Answer (b) Journal Enteries in the book of Wise Inc.

Sl. no. Account Debit Credit

1. Lease Expenses 296140

To Cash 296140

2. Profit & loss Account 296140

To Lease Expenses 296140

Answer (C) Broker fee is one time expenses and it is revenue expenses, It should be debited full amount in the year of incurred.

Account Debit Credit

Brokerage Exp. 34310   

To Cash 34310

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

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