Question
On January A Ltd signed a year noncancelable lease agreement to lease a
storage building from Ltd The following information pertains to this lease agreement.
The agreement requires equal rental payments of $ each Dec The first lease
payment is made on January
The fair value of the building on January is $
The building has an estimated economic life of years, with an unguaranteed residual
value of $ A Ltd depreciates similar buildings on the straightline method.
The lease is nonrenewable. At the termination of the lease, the building reverts to the
lessor.
A Ltds incremental borrowing rate is per year. The lessor's implicit rate is not
known by A Ltd
The yearly rental payment includes $ of cost related to taxes on the property.
Required:
Prepare the journal entries on the A Ltds books to reflect the signing of the lease agreement
and to record the payments and expenses related to this lease for the years and A
Ltds year end is December
