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QUESTION

Giannis Corporation leases a building to Jabari, Inc. on January 1, 2017. The following facts pertain to the lease agreement.

Giannis Corporation leases a building to Jabari, Inc. on January 1, 2017. The following facts pertain to the lease agreement.

1.The lease term is 10 years with equal annual rental payments of $3,449 at the end of each year.

2.Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature.

3.The building has a fair value of $34,000, a book value to Giannis of $22,000, and a useful life of 15 years.

4.At the end of the lease term, Giannis and Jabari expect the residual value of the building to be $12,000, and this amount is guaranteed by Money, Inc., a third party.

5.Giannis wants to earn a 5% return on the lease, and collectibility of the payments is probable.

A.

Prepare the journal entries for  (the lessee) for 2017 and 2018, assuming the rate implicit in the lease is known to .

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