Appendix I (continued) Accounting issues Prepared by Shania Mendez Leased facility OTF leased a facility to carry out the spray-painting of furniture. and moved into the new premises at the beginning of the year. The building belongs to a private deveioper, LAW Properties Inc. (LAW). LAW and OTF signed a lease effective January 1. The building met OTF's requirements perfectly for the spray-painting equipment. OTF would have liked to have purchased the building, but LAW did not want to sell it. I have summarized the terms of the lease agreement below. The fair value of the building at January 1 was $1,200,000, as determined by an independent appraiser. OTF normally depreciates buildings on a straight-line basis over their useful life. I included the iease payments in rent expense for the current year-end financial statements. 0 The lease term is 15 years, with annual payments of $98,000. o The first payment was made on January 1. All other payments will be payable on January 1 of each year for the lease term. 0 LAW is responsible for building maintenance. u The property has a remaining useful life of 35 years. . OTF's borrowing rate is 5%. . The residuai value of the facility at the end of the lease term will be $500,000