On January 1, 2023, Pharoah Ltd. signs an 8-year non-cancellable lease agreement to lease a storage building from Hyde Inc. Hyde is in the business of leasing/selling property. Collectibility of the lease payments is reasonably assured and no additional costs are to be incurred by the lessor (other than executory costs). Both the lessor and the lessee are private corporations adhering to ASPE. The following information is available regarding this lease agreement: 1. The agreement requires equal payments at the end of each year. 2. At January 1, 2023, the fair value of the building is $1353000 and Hyde's book value is $1132000. 3. 4. 5. 6. The building has an estimated economic life of 8 years, with no residual value. Pharoah uses straight-line depreciation for all its depreciable assets. At the termination of the lease, title to the building will transfer to the lessee. Pharoah's incremental borrowing rate is 11%. Hyde Inc. set the annual rental to ensure a 10% rate of return. The lessor's implicit rate is known to Pharoah. The yearly lease payment includes $4800 executory costs related to taxes on the property. Click here to view the factor table. Rounded to the nearest dollar, the amount of the total annual lease payment is (Round present value factor calculations to 3 decimal places, e.g. 125.124) O $212184. O $258408. $253608. O $248808.
On January 1, 2023, Pharoah Ltd. signs an 8-year non-cancellable lease agreement to lease a storage building from Hyde Inc. Hyde is in the business of leasing/selling property. Collectibility of the lease payments is reasonably assured and no additional costs are to be incurred by the lessor (other than executory costs). Both the lessor and the lessee are private corporations adhering to ASPE. The following information is available regarding this lease agreement: 1. The agreement requires equal payments at the end of each year. 2. At January 1, 2023, the fair value of the building is $1353000 and Hyde's book value is $1132000. 3. 4. 5. 6. The building has an estimated economic life of 8 years, with no residual value. Pharoah uses straight-line depreciation for all its depreciable assets. At the termination of the lease, title to the building will transfer to the lessee. Pharoah's incremental borrowing rate is 11%. Hyde Inc. set the annual rental to ensure a 10% rate of return. The lessor's implicit rate is known to Pharoah. The yearly lease payment includes $4800 executory costs related to taxes on the property. Click here to view the factor table. Rounded to the nearest dollar, the amount of the total annual lease payment is (Round present value factor calculations to 3 decimal places, e.g. 125.124) O $212184. O $258408. $253608. O $248808.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On January 1, 2023, Pharoah Ltd. signs an 8-year non-cancellable lease agreement to lease a storage building from Hyde Inc. Hyde is in
the business of leasing/selling property. Collectibility of the lease payments is reasonably assured and no additional costs are to be
incurred by the lessor (other than executory costs). Both the lessor and the lessee are private corporations adhering to ASPE. The
following information is available regarding this lease agreement:
1. The agreement requires equal payments at the end of each year.
2.
At January 1, 2023, the fair value of the building is $1353000 and Hyde's book value is $1132000.
3.
4.
5.
6.
The building has an estimated economic life of 8 years, with no residual value. Pharoah uses straight-line depreciation for all
its depreciable assets.
At the termination of the lease, title to the building will transfer to the lessee.
Pharoah's incremental borrowing rate is 11%. Hyde Inc. set the annual rental to ensure a 10% rate of return. The lessor's
implicit rate is known to Pharoah.
The yearly lease payment includes $4800 executory costs related to taxes on the property.
Click here to view the factor table.
Rounded to the nearest dollar, the amount of the total annual lease payment is (Round present value factor calculations to 3 decimal
places, e.g. 125.124.)
$212184.
O $258408.
$253608.
$248808.
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