On January 1, 2014, Walker, Inc., signs a 5-year lease for two floors of a 20-floor building. The building has an expected remaining life of 20 years. The space is available immediately, and Walker agrees to make annual payments $325,000 on December 31 of each year. The lease contains no renewal or purchase options. The implicit rate in the lease is 7%.
1. What journal entry would Walker prepare on January 1, 2014, under U.S. GAAP existing in 2014?
2. What journal entry would Walker prepare on January 1, 2014, under the FASB’s 2013 lease exposure draft?
3. Compute and label the amounts that would be shown on Walker’s income statement, balance sheet, and statement of cash flows for the year ended December 31, 2014, assuming that it uses the FASB’s 2013 lease exposure draft.
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