On January 3, 2011, Wayside Inc. sold a building with a book value of $1,800,000 to Birchman Industries for $1,735,500. Wayside immediately entered into a leasing agreement wherein Wayside would lease the building back for an annual payment of $320,049. The term of the lease is eight years, the expected remaining useful life of the building. The first annual lease payment is to be made immediately, and future payments will be made on January 1 of each succeeding year. Birchman’s implicit interest rate is 13%.

Instructions:

1. Prepare the journal entries that both Wayside and Birchman should make on January 3, 2011, relating to this sale-leaseback transaction.

2. Prepare the journal entries that both parties should make at the end of 2011 to accrue interest and to amortize the leased building.