Reference no: EM132723982

A Sale Snoopy Corp. (SC), the seller-lessee, sells a building on January 1, 2017, to Mickey Inc. (MI), the buyer- lessor, for $2,000,000 cash. At the same time, SC enters into a contract with MI for the right to use the building for 18 years, with annual payments of $120,000 payable at the end of each year. Other pertinent facts follow:

1. The fair value of the building at the date of sale is $1,800,000.
2. The lease payment reflected market rents.
4. The net book value of the building at the date of sale was $1,000,000 ($1,600,000 cost less $600,000 accumulated depreciation).
5. The interest rate implicit in the lease is 4.5% per annum, which is readily determinable by SC.
6. The estimated remaining life of the building at the time of sale was 30 years.
7. The estimated residual value of the building at the end of its useful life is $0. Both companies have a December 31 year end.

Required:

Lessee:

Problem a) Prepare the journal entries for SC, the seller-lessee, for January 1, 2017 (recognition and initial measurement).

 

Problem b) Prepare the journal entries for SC, the seller-lessee, for December 31, 2017 (subsequent measurement).