On January 1, 2016, Rossi Company leased a building under a three-year operating

Question

On January 1, 2016, Rossi Company leased a building under a three-year operating lease. The annual rental payments are $68,000 beginning on January 1, 2016, the inception of the lease, and $50,000 January 1 of 2017 and 2018. Rossi made modifications to the building costing $90,000 before occupying the building. The useful life of the building and the modifications is 30 years with no expected residual value.

Required:

Prepare the appropriate journal entries for Rossi Company for 2016. Rossi’s fiscal year is the calendar year, and Rossi uses straight-line depreciation.

Explanation / Answer

01.01.2016

Bank a/c Dr. 68000

To Lease rent a/c 68000

(accrual of lease rent income for the year 2016)

01.01.2016

Building a/c Dr. 90000

to Bank a/c 90000

(Modification in bulding )

31.12.2016

Depreciation a/c Dr 3000

To Building a/c 3000

(Depreciation on modification)

Depreciation of bulding has not been calculated since cost is not available.

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