Question
In: Accounting
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
ekkarill92 answered 1 year agoRelated Solutions
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