Question $1$

On January $1,2021,$ A Ltd$.$ signed a $10-$year non$-$cancelable lease agreement to lease a

storage building from $S$ Ltd$.$ The following information pertains to this lease agreement.

The agreement requires equal rental payments of $$144,000$ each Dec $31.$ The first lease

payment is made on $1$ January $2021.$

The fair value of the building on $1$ January $2021$ is $$880,000.$

The building has an estimated economic life of $12$ years, with an unguaranteed residual

value of $$20,000.$ A Ltd$.$ depreciates similar buildings on the straight$-$line method.

The lease is nonrenewable. At the termination of the lease, the building reverts to the

lessor.

A Ltd$.\text{'}$s incremental borrowing rate is $12\%$ per year. The lessor's implicit rate is not

known by A Ltd$.$

The yearly rental payment includes $$4,941$ of cost related to taxes on the property.

Required:

Prepare the journal entries on the A Ltd$\text{'}$s books to reflect the signing of the lease agreement

and to record the payments and expenses related to this lease for the years $2021$ and $2022.$ A

Ltd$.\text{'}$s year end is December $31.$