On January 1, 2015, Yancey, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement. (a) The agreement requires equal rental payments at the beginning each year. (b) The fair value of the building on January 1, 2015 is $3,000,000; the book value to Holt is also $3,000,000. (c) The building has an estimated economic life of 10 years, with no residual value. Yancey depreciates similar buildings on the straight-line method. (d) At the termination of the lease, the title to the building will be transferred to the lessee. (e) Yancey’s incremental borrowing rate is 11% per year. Holt Warehouse Co. set the annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by Yancey, Inc. (f) The yearly rental payment includes $8,000 of executory costs related to taxes on the property. 37. What is the amount of the minimum annual lease payment? a. $443,851 b. $451,851 c. $488,236 d. $591,801 38. What is the amount of the total annual lease payment? a. $443,851 b. $451,851 c. $488,236 d. $591,801 39. From the lessee’s viewpoint, what type of lease exists in this case? a. Sales-type lease b. Sale-leaseback c. Capital lease d. Operating lease 40. From the lessor’s viewpoint, what type of lease is involved? a. Sales-type lease b. Sale-leaseback c. Direct-financing lease d. Operating lease 41. Yancey, Inc. would record depreciation expense on this storage building in 2015 of (Rounded to the nearest dollar.) a. $0. b. $300,000. c. $400,000. d. $451,851. 42. If the lease were nonrenewable, there was no purchase option, title to the building does not pass to the lessee at termination of the lease and the lease were only for seven years, what type of lease would this be for the lessee? a. Sales-type lease b. Direct-financing lease c. Operating lease d. Capital lease
Use the following information for questions 37 through 42.
On January 1, 2015, Yancey, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement.
(a) The agreement requires equal rental payments at the beginning each year.
(b) The fair value of the building on January 1, 2015 is $3,000,000; the book value to Holt is also $3,000,000.
(c) The building has an estimated economic life of 10 years, with no residual value. Yancey depreciates similar buildings on the straight-line method.
(d) At the termination of the lease, the title to the building will be transferred to the lessee.
(e) Yancey’s incremental borrowing rate is 11% per year. Holt Warehouse Co. set the annual rental to insure a 10%
(f) The yearly rental payment includes $8,000 of executory costs related to taxes on the property.
37. What is the amount of the minimum annual lease payment?
a. $443,851
b. $451,851
c. $488,236
d. $591,801
38. What is the amount of the total annual lease payment?
a. $443,851
b. $451,851
c. $488,236
d. $591,801
39. From the lessee’s viewpoint, what type of lease exists in this case?
a. Sales-type lease
b. Sale-leaseback
c. Capital lease
d. Operating lease
40. From the lessor’s viewpoint, what type of lease is involved?
a. Sales-type lease
b. Sale-leaseback
c. Direct-financing lease
d. Operating lease
41. Yancey, Inc. would record
a. $0.
b. $300,000.
c. $400,000.
d. $451,851.
42. If the lease were nonrenewable, there was no purchase option, title to the building does not pass to the lessee at termination of the lease and the lease were only for seven years, what type of lease would this be for the lessee?
a. Sales-type lease
b. Direct-financing lease
c. Operating lease
d. Capital lease
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