Gage Co. purchases land and constructs a service station and car wash for a total of P540,000. At January 2, 2018, when construction is completed, the facility and land on which it was constructed are sold to a major oil company for P600,000 and immediately leased from the oil company by Gage. Fair value of the land at time of the sale was P60,000. The lease is a 10-year, noncancellable lease. Gage uses straight-line depreciation for its other various business holdings. The economic life of the facility is 15 years with zero salvage value. Title to the facility and land will pass to Gage at termination of the lease. A partial amortization schedule for this lease is as follows: Payment Interest Amortization Balance Jan. 2, 2018 600,0000 Dec. 31, 2018 97,646.71 60,000.00 37,646.71 562,353.29 Dec. 31, 2019 97,646.71 56,235.33 41,411.38 520,941.91 Dec. 31, 2020 97,646.71 52,094.19 45,552.52 475,389.39 From the viewpoint of the lessor, what type of lease is involved above? Explain thoroughly your answer.
Gage Co. purchases land and constructs a service station and car wash for a total of P540,000. At January 2, 2018, when construction is completed, the facility and land on which it was constructed are sold to a major oil company for P600,000 and immediately leased from the oil company by Gage. Fair value of the land at time of the sale was P60,000. The lease is a 10-year, noncancellable lease. Gage uses straight-line
|
|
Payment |
Interest |
Amortization |
Balance |
|
Jan. 2, 2018 |
|
|
|
600,0000 |
|
Dec. 31, 2018 |
97,646.71 |
60,000.00 |
37,646.71 |
562,353.29 |
|
Dec. 31, 2019 |
97,646.71 |
56,235.33 |
41,411.38 |
520,941.91 |
|
Dec. 31, 2020 |
97,646.71 |
52,094.19 |
45,552.52 |
475,389.39 |
From the viewpoint of the lessor, what type of lease is involved above? Explain thoroughly your answer.
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