On January 1, 2011, Morrison Corp. leased a building to Wisen Inc. Both companies use IFRS. The relevant information on the lease is as follows:
1. The lease arrangement is for 10 years.
2. The leased building cost $5.5 million and was purchased by Morrison for cash on July 1, 2011.
3. The building is amortized on a straight-line basis. Its estimated economic life is 40 years.
4. Lease payments are $325,000 per year and are made at the end of the lease year, and so the first lease payment was made June 30, 2012.
5. Property tax expense of $57,000 and insurance expense of $11,000 on the building were incurred by Morrison for the 2011 fiscal year. Payment for these two items was made on July 1, 2011.
6. Both the lessor and the lessee have their fiscal years on a calendar-year basis.
Instructions
(a) Prepare the journal entries and any year-end adjusting journal entries made by Morrison Corp. in 2011.
(b) Prepare the journal entries and any year-end adjusting journal entries made by Wisen Inc. in 2011.
(c) If Morrison paid $30,000 to a real estate broker on July 1, 2011, as a fee for finding the lessee, how much should Morrison Corp. report as an expense for this fee item in 2011?
(d) Would any of the accounting treatment you have provided in (a) through (c) above change if Morrison had been using private enterprise GAAP?