Reference no: EM132841151
Question - On January 1, 2020, Thor Corp. sells land to Loki Inc. for $2,000,000, and immediately leases the land back. Both companies follow ASPE. The following information relates to this transaction:
The term of the non-cancellable lease is 20 years and the title transfers to Thor at the end of the lease term
The land has a cost basis of $1,600,000 to Thor.
The lease agreement calls for equal rental payments of $203,704 at the end of each year.
The land has a fair value of $2,000,000 on January 1, 2020.
The incremental borrowing rate of Thor Corp. is 10%. Thor is aware that Loki set the annual rentals to ensure a rate of return of 8%.
Thor pays all executory costs, which total $170,000 in 2020.
Collectability of the rentals is reasonably assured, and any un-reimbursable costs under the lease that are likely to be incurred can be reasonably estimated by the lessor.
Required -
A) Do the 2020 journal entries on the books of Thor Corp. to reflect the above sale and lease transactions.
B) Do the 2020 journal entries on the books of Loki Inc. to reflect the above purchase and lease transactions.
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