On January 1,2011,Teddy Company sold a building to Breezy Bank for $40,000,000 and immediately leased it back under a 25-year non-cancellable lease at $3,208,000 per year,payable at the beginning of each year.Breezy used an implicit rate of 7% to determine the lease payments,and this rate is known to Teddy.The building had a carrying value of $12,000,000 on Teddy's books.
Requirement:
Assume that the lease is a finance lease for both the lessee and lessor,and there is no profit margin for the lessor.Prepare all necessary journal entries for 2011 for Teddy (the seller-lessee)and Breezy (the buyer-lessor).Teddy will continue to depreciate the building on a straight-line basis over the lease term.Explain the implications to Teddy's depreciation expense of this transaction.

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The Answer of On January 1,2011,Teddy Company sold a building to Breezy Bank for $40,000,000 and immediately leased it back under a 25-year non-cancellable lease at $3,208,000 per year,payable at the beginning of each year.Breezy used an implicit rate of 7% to determine the lease payments,and this rate is known to Teddy.The building had a carrying value of $12,000,000 on Teddy's books.
Requirement:
Assume that the lease is a finance lease for both the lessee and lessor,and there is no profit margin for the lessor.Prepare all necessary journal entries for 2011 for Teddy (the seller-lessee)and Breezy (the buyer-lessor).Teddy will continue to depreciate the building on a straight-line basis over the lease term.Explain the implications to Teddy's depreciation expense of this transaction.

On January 1,2011,Teddy Company Sold a Building to Breezy Bank