t the beginning of current year, Panorama Company leased a building form a lessor with the following pertinent information Annual rental payable at the end of each year 1,000,000 Initial direct cost paid 400,000 Lease incentive received 100,000 Leasehold improvement 200,000 Purchase option that is reasonably certain to be exercised 500,000 Lease term 5 years Useful life of building 8 years Implicit interest rate 10% PV of an ordinary annuity of 1 for 5 periods at 10% 3.79 Present value of 1 for 5 periods at 10% 0.62

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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At the beginning of current year, Panorama Company leased a building form a lessor with the following pertinent information

Annual rental payable at the end of each year

1,000,000

Initial direct cost paid

400,000

Lease incentive received

100,000

Leasehold improvement

200,000

Purchase option that is reasonably certain to be exercised

500,000

Lease term

5 years

Useful life of building

8 years

Implicit interest rate

10%

PV of an ordinary annuity of 1 for 5 periods at 10%

3.79

Present value of 1 for 5 periods at 10%

0.62

 

1. What is the cost of the right of use asset?

a. 4,500,000

b. 4,400,000

c. 4,700,000

d. 4,600,000

 

2. What is the depreciation for current year?

a. 880,000

b. 900,000

c. 550,000

d. 575,000

 

3. What is the interest expense for current year?

a. 410,000

b. 379,000

c. 450,000

d. 429,000

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