On January 1, 2025, Wildhorse, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Ayayai Warehouse Company, Collectibility of the lease payments is reasonably predictable and no important uncertainties surround the 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 of each year. (b) The fair value of the building on January 1, 2025 is $6450000; however, the book value to Ayayai is $5400000. (c) The building has an estimated economic life of 10 years, with no residual value. Wildhorse 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) Wildhorse's incremental borrowing rate is 10% per year. Ayayai Warehouse Co. set the annual rental to ensure a 8% rate of return. The implicit rate of the lessor is known by Wildhorse, Inc. (f) In addition to the payments for the use of the leased asset, the lessor also requires the lessee to pay a yearly payment of $15900 of executory costs related to taxes on the property.. Click here to view factor tables. From the lessee's viewpoint, what will be recorded as Right-of-Use Asset amount? (Round factor value calculation to 5 decimal places, e.g. 1.25124. and round intermediate calculation to O decimal places.) O $5400000 $6450000 O $5969840 O $6557466
On January 1, 2025, Wildhorse, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Ayayai Warehouse Company, Collectibility of the lease payments is reasonably predictable and no important uncertainties surround the 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 of each year. (b) The fair value of the building on January 1, 2025 is $6450000; however, the book value to Ayayai is $5400000. (c) The building has an estimated economic life of 10 years, with no residual value. Wildhorse 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) Wildhorse's incremental borrowing rate is 10% per year. Ayayai Warehouse Co. set the annual rental to ensure a 8% rate of return. The implicit rate of the lessor is known by Wildhorse, Inc. (f) In addition to the payments for the use of the leased asset, the lessor also requires the lessee to pay a yearly payment of $15900 of executory costs related to taxes on the property.. Click here to view factor tables. From the lessee's viewpoint, what will be recorded as Right-of-Use Asset amount? (Round factor value calculation to 5 decimal places, e.g. 1.25124. and round intermediate calculation to O decimal places.) O $5400000 $6450000 O $5969840 O $6557466
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On January 1, 2025, Wildhorse, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Ayayai Warehouse
Company, Collectibility of the lease payments is reasonably predictable and no important uncertainties surround the 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 of each year.
(b) The fair value of the building on January 1, 2025 is $6450000; however, the book value to Ayayai is $5400000.
(c) The building has an estimated economic life of 10 years, with no residual value. Wildhorse 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) Wildhorse's incremental borrowing rate is 10% per year. Ayayai Warehouse Co. set the annual rental to ensure a 8% rate of return.
The implicit rate of the lessor is known by Wildhorse, Inc.
(f) In addition to the payments for the use of the leased asset, the lessor also requires the lessee to pay a yearly payment of $15900 of
executory costs related to taxes on the property..
Click here to view factor tables.
From the lessee's viewpoint, what will be recorded as Right-of-Use Asset amount? (Round factor value calculation to 5 decimal places, e.g.
1.25124. and round intermediate calculation to O decimal places.)
O $5400000
$6450000
O $5969840
O $6557466
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