On January 1, 2011, Cook Textiles leased a building with two acres of land from Peck Development.
Question:
On January 1, 2011, Cook Textiles leased a building with two acres of land from Peck Development. The lease is for 10 years at which time Cook has an option to purchase the property for $100,000. The building has an estimated life of 20 years with a residual value of $150,000. The lease calls for Cook to assume all costs of ownership and to make annual payments of $200,000 due at the beginning of each year. On January 1, 2011, the estimated value of the land was $400,000. Cook uses the straight-line method of depreciation and pays 10% interest on borrowed money. Peck's implicit rate is unknown.
Required: Prepare Cook Company's journal entries related to the lease in 2011.
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Because exercise of the option appears at the inception of the lease to be reasonably assured paymen...View the full answer
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