Jamison Co. leased a building to Dexter Inc. on January 1, 2017. Relevant information related to the lease is as follows. The lease arrangement is for 10 years. The building is expected to have a residual value at the end of the lease of $3,500,000 (unguaranteed). The leased building has a cost of $4,000,000 and was purchased for cash on January 1, 2017. The building is depreciated on a straight-line basis. Its estimated economic life is 50 years with no salvage value. Lease payments are $275,000 per year and are made at the beginning of the year. Dexter has an incremental borrowing rate of 8%, and the rate implicit in the lease is unknown to Dexter. Both the lessor and the lessee are on a calendar-year basis.
Required: Prepare the journal entries that Jamison should make in 2017.
Prepare the journal entries that Dexter should make in 2017.
(c)If Dexter paid $30,000 to a real estate broker on January 1, 2017, as a fee for finding the lessor, how much should Dexter report as an expense for this item in 2017?