At the first day of 2021 Rawan Company signed 40 years lease for a Building. The...

 

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At the first day of 2021 Rawan Company signed 40 years lease for a Building. The terms of the lease called for Rawan Co. to make annual payments of $20,000 at the beginning of each year, starting January 1, 2021. The building has a book value of 240,000 (the FMV at the leasing date was $230,000) an estimated useful life of 50 years and a $40,000 unguaranteed residual value. Rawan Co. uses the straight-line method of depreciation for all of its plant (fixed) assets. Rawan's incremental borrowing rate is 10%, and the Lessor's rate is unknown. Instructions a) What type of lease is this? Explain. b) Compute the present value of the minimum lease payments. c) Prepare all journal entries for Rawan through Jan. 1, 2021. d) Prepare all journal entries for Rawan through Jan. 1, 2022 At the first day of 2021 Rawan Company signed 40 years lease for a Building. The terms of the lease called for Rawan Co. to make annual payments of $20,000 at the beginning of each year, starting January 1, 2021. The building has a book value of 240,000 (the FMV at the leasing date was $230,000) an estimated useful life of 50 years and a $40,000 unguaranteed residual value. Rawan Co. uses the straight-line method of depreciation for all of its plant (fixed) assets. Rawan's incremental borrowing rate is 10%, and the Lessor's rate is unknown. Instructions a) What type of lease is this? Explain. b) Compute the present value of the minimum lease payments. c) Prepare all journal entries for Rawan through Jan. 1, 2021. d) Prepare all journal entries for Rawan through Jan. 1, 2022

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