Karen-Ann Fashions, Inc. entered into a 5-year lease with Phelps Rentals to occupy an office building. The terms of the lease are presented below. The economic life of the building is 30 years. The building had a fair value of $8,000,000 and Karen-Ann has an option to purchase the building at the end of the lease term for $4,600,000, which is expected to be considerably below fair value at lease termination. The annual lease payments are $840000 and are due on January 1 with the first one due at lease commencement on January 1, 2022. The implicit rate in the lease is 5% and is known by Karen-Ann. There is no guaranteed residual value specified. The lessor did not offer any incentives to sign the lease. Karen-Ann did not incur any initial indirect costs. The lease commencement date is January 1. All payments are due on January 1. The present value (PV) of the payments due under the lease is:
Karen-Ann Fashions, Inc. entered into a 5-year lease with Phelps Rentals to occupy an office building. The terms of the lease are presented below. The economic life of the building is 30 years. The building had a fair value of $8,000,000 and Karen-Ann has an option to purchase the building at the end of the lease term for $4,600,000, which is expected to be considerably below fair value at lease termination. The annual lease payments are $840000 and are due on January 1 with the first one due at lease commencement on January 1, 2022. The implicit rate in the lease is 5% and is known by Karen-Ann. There is no guaranteed residual value specified. The lessor did not offer any incentives to sign the lease. Karen-Ann did not incur any initial indirect costs. The lease commencement date is January 1. All payments are due on January 1. The present value (PV) of the payments due under the lease is:
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