On January 1, 2017, Windsor Co. leased a building to Wildhorse Inc. The relevant
ID: 2519423 • Letter: O
Question
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 S0 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. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Prepare the journal entries that Windsor should make in 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually) Date Account Titles and Explanation Credit To record cost of the building) To record receipt of lease payment) 12/31/17 (To record the recognition of the revenue each period) (To record depreciation expense on the leased asset) LINK TO TEXT LINK TO TEXT Prepare the journal entries that Wildhorse should make in 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275.) Date Account Titles and Explanation Debit Credit To record the lease) To record lease liability) 12/31/17 LINK TO TEXT If Wildhorse paid $40,000 to a real estate broker on lanuary 1, 2017, as a fee for finding the lessor, what is the initial measurement of the right-of-use asset? Right-of-use asset sExplanation / Answer
a) Windsor books of accounts
b. Wildhorse books of accounts
c. Right of use assets = 3900000 + $40000
= $3940000
Date Accounts title Dr Cr 1/1/17 Building 3900000 To cash 3900000 [Being cost of building recorded] Cash 285000 To unearned rent revenue 285000 [Being receipt of lease recorded] 12/31/17 unearned rent revenue 285000 To Rent revenue 285000 Depreciation expense [3900000 / 50 years] 78000 To Accumulated depreciation - building 78000