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Prepare the journal entries that Sage Hill should make

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Question - On January 1, 2020, Sage Hill Co. leased a building to Oriole Inc. The relevant information related to the lease is as follows.

1. The lease arrangement is for 10 years. The building is expected to have a residual value at the end of the lease of $2,800,000(unguaranteed).

2. The leased building has a cost of $3,300,000 and was purchased for cash on January 1, 2020.

3. The building is depreciated on a straight-line basis. Its estimated economic life is 50 years with no salvage value.

4. Lease payments are $270,000 per year and are made at the beginning of the year.

5. Oriole has an incremental borrowing rate of 6%, and the rate implicit in the lease is unknown to Oriole.

6. Both the lessor and the lessee are on a calendar-year basis.

Required - Prepare the journal entries that Sage Hill should make in 2020.

Reference no: EM133078180

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