Reference no: EM132774395

Question - Not-For-Profit Case - The not-for-profit organization, City Hope, operates in the intercity of Jones Town. City Hope provides limited health care, career training, as well as addiction and family counseling services. Services are provided free or on an income-based scale. The following transaction and events occurred in 2019. Answer the questions related to each.

A. Developer Company, a for-profit entity, specializes in converting intercity commercial properties into affordable Section 8 family housing units. Developer recognizes the value of City Hope's services and offers City Hope space in one of its properties to establish a satellite clinic. The terms of the agreement are a 10-year lease for 2,000 square feet at an annual rent of $1. City Hope's attorney has assured the board that the agreement will remain enforceable over the 10-year period. City Hope had planned to expand its services into this part of the city, but had been deterred by the rent rates in the area. The normal rent for comparable office space is $24,000. At the time of the agreement, City Hope's incremental borrowing rate was 6%. City Hope accepted and signed the lease agreement on January 1, 2019 and is able to open the clinic by the end of the month. City Hope does not prepare monthly adjusting entries.

Required -

1. Prepare, if necessary, the journal entry to recognize the lease agreement on January 1, 2019.

2. Prepare the lease/rent related journal entry for December 31, 2019.