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Doug Nelson Co. leased a building to Patrick Wise Inc: Account for an Operating Lease

On January 1, 2008, Doug Nelson Co. leased a building to Patrick Wise Inc. The relevant information related to the lease is as follows.

1. The lease arrangement is for 10 years.

2. The leased building cost $4,500,000 and was purchased for cash on January 1, 2008.

3. The building is depreciated on a straight-line basis. Its estimated economic life is 50 years.

4. Lease payments are $275,000 per year and are made at the end of the year.

5. Property tax expense of $85,000 and insurance expense of $10,000 on the building were incurred by Nelson in the first year. Payments 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.

INSTRUCTIONS

A) Prepare the journal entries that Nelson Co. should make in 2008.

B) Prepare the journal entries that Wise Inc. should make in 2008.

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ANSWERS

Instruction A
January 1, 2008
DR: Building 4,500,000
CR: Cash ...

Solution Summary

This solution provides the journal entries for Nelson Co. and Wise Inc.

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