LAC Has Negotiated a Lease Agreement with LEC Effective January

question 76

Essay

LAC has negotiated a lease agreement with LEC effective January 1, 2014.LAC will provide LEC with a special-purpose building for ten (10)years.The lease is non-cancellable; requires LEC to provide maintenance, insurance, taxes, etc.; and stipulates that the building reverts back to LAC's control at the end of the lease.The building cost LAC $200,000 and is expected to have no residual value at the end of the lease.LAC expects a 15% return on investments and the lease qualifies as a direct financing lease.Rents are paid each December 31 starting in 2014.
(a)How much annual rent will the lessee pay (rounded to the nearest dollar)? $ _.
(b)Complete the following schedule of lease amortization for the lessee for the first two years: (c)Complete the following entries for the lessee: January 1, 2014, inception of lease.
December 31, 2014, first rental payment and lessee's year-end entries (end of the accounting period).December 31, 2014, accrual by lessee of $4,000 taxes on the building and payment of $800 for repairs on the building.

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