On January 1, 2021, Pharoah, 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, 2021 is $5600000; however, the book value to Holt is $4550000. (c) The building has an estimated economic life of 10 years, with no residual value. Pharoah depreciates similar buildings using the straight-line method. (d) At the termination of the lease, the title to the building will be transferred to the lessee. (e) Pharoah’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 Pharoah, Inc. (f) The yearly rental payment includes $14200 of executory costs related to taxes on the property. What is the amount of the total annual lease payment? $814,322 $828,522 $254,322 $842,722
On January 1, 2021, Pharoah, 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, 2021 is $5600000; however, the book value to Holt is $4550000.
(c) The building has an estimated economic life of 10 years, with no residual value. Pharoah
(d) At the termination of the lease, the title to the building will be transferred to the lessee.
(e) Pharoah’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 $14200 of executory costs related to taxes on the property.
What is the amount of the total annual lease payment?
$814,322
$828,522
$254,322
$842,722
In exchange for one or more payments, a lessor agrees to grant a lessee the right to manage the use of specific property, plant, and equipment for a predetermined length of time under the terms of a lease. Different lease designations apply depending on whether a company is the lessee or the lessor.
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