Use the following Annuity Table for questions. Future Value of Ordinary Annuity of 1 Present Value of an Ordinary Annuity of 1 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. What is the amount of the minimum annual lease payment? a. 443,851 b. 451,851 c. 488,236 d. 591,801 What is the amount of the total annual lease payment? a. 443,851 b. 451,851 c. 488,236 d. 591,801 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
Use the following Annuity Table for questions.
| Future Value of Ordinary Annuity of 1 |
| Present Value of an Ordinary Annuity of 1 |
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.
What is the amount of the minimum annual lease payment?
a. 443,851
b. 451,851
c. 488,236
d. 591,801
What is the amount of the total annual lease payment?
a. 443,851
b. 451,851
c. 488,236
d. 591,801
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
From the lessor's viewpoint, what type of lease is involved?
a. sales-type lease
b. sales-leaseback
c. direct-financing lease
d. operating lease
Yancey. Inc would record
a. 0
b. 300,000
c. 400,000
d. 451,851
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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