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    Accounting for an Operating Lease

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    On January 1, 2011, Secada Co. leased a building to Ryker Inc. The relevant information related to the lease is as follows.

    The lease arrangement is for 10 years.
    The leased building cost $3,600,000 and was purchased for cash on January 1, 2011.
    The building is depreciated on a straight-line basis. Its estimated economic life is 50 years with no salvage value.
    Lease payments are $220,000 per year and are made at the end of the year.
    Property tax expense of $85,000 and insurance expense of $10,000 on the building were incurred by Secada in the first year. Payment on these two items was made at the end of the year.
    Both the lessor and the lessee are on a calendar-year basis.
    Instructions

    (a) Prepare the journal entries that Secada Co. should make in 2011. (For multiple debit/credit entries, list amounts from largest to smallest eg 10, 5, 3, 2.)

    Date Description Debit Credit
    1/1/11 $
    $

    12/31/11 $
    $
    (To record receipt of lease payment)

    $
    $
    (To record depreciation)

    $
    $
    $
    (To record insurance and property tax)

    (b) Prepare the journal entries that Ryker Inc. should make in 2011.

    Date Description Debit Credit
    12/31/11 $
    $

    (c) If Secada paid $30,000 to a real estate broker on January 1, 2011, as a fee for finding the lessee, how much should be reported as an expense for this item in 2011 by Secada Co.?
    $

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    https://brainmass.com/business/leasing/accounting-for-an-operating-lease-406306

    Solution Summary

    Your tutorial is attached in Excel and discusses the capitalization criteria for lessee and lessor as well as showing the required JEs.

    $2.49

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