Ramsay Corp. (lessor) entered into a lease arrangement with Williams Corp. (lessee) on January 1, 2018....

Ramsay Corp. (lessor) entered into a lease arrangement with Williams Corp. (lessee) on January 1, 2018. According to the lease arrangement, Ramsay leased a building to Williams for 8 years. The building has an estimated economic life of 40 years with no residual value. The cost of the building was $2,500,000 and it was purchased for cash on January 1, 2018. Its fair value is $2,500,000 and it is to be depreciated on a straight line basis. At the end of the year, Ramsay paid $70,000 in property taxes and $8,700 for insurance. Lease payments of $180,000 per year are made at the end of each year. Both Ramsay and Williams adjust and close books annually at December 31. Ramsay’s implicit interest rate is 7% and is known to Williams.

Instructions

Identify the type of lease involved using the classification criteria. Discuss the accounting treatment that should be applied by both the lessee and lessor.
Prepare Ramsay’s journal entries for 2018
Prepare Williams’ journal entries for 2018 (1 mark)
If at the inception of the lease, on January 1, 2018, Ramsay incurred appraisal fees of $16,000, how should this expense be reported in 2018 by Ramsay?

Solutions

Expert Solution

ekkarill92 answered 10 months ago

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