Exercise 21A-17 a-c (Part Level Submission) On January 1, 2017, Windsor Co. leas

Question

Exercise 21A-17 a-c (Part Level Submission) On January 1, 2017, Windsor Co. leased a building to Wildhorse Inc. The relevant information related to the lease is as follows. 1. The lease arrangement is for 10 years. The building is expected to have a residual value at the end of the lease of $3,400,000 (unguaranteed). 2. The leased building has a cost of $3,900,000 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 $285,000 per year and are made at the beginning of the year. 5. Wildhorse has an incremental borrowing rate of 9%, and the rate implicit in the lease is unknown to Wildhorse 6 Both the lessor and the lessee are on a calendar-year basis.

Explanation / Answer

Books of lessor

Leased receivable                  debit

285000

Assest                                credit

285000

                Books of lessee

Leased asset            debit

285000

Lease liability     credit

285000

Books of lessor

Cash                                 debit

285000

Lease receivable           credit

259350

Finance income            credit

25650

Leased receivable                  debit

285000

Assest                                credit

285000

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