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Assume that on December 31, 2016, Waste Management, Inc. signs an 8-year noncancelable lease agreement to lease a building from Reyes Warehouse Company. The following

Assume that on December 31, 2016, Waste Management, Inc. signs an 8-year noncancelable lease agreement to lease a building from Reyes Warehouse Company. The following information pertains to this lease agreement.

1. The agreement requires equal rental payments of $73,530 beginning on December 31, 2016.
2. The fair value of the building on December 31, 2016, is $465,000.
3. The building has an estimated economic life of 10 years, a guaranteed residual value at the end of 8 years of $16,000, and an expected residual value of $9,000. Waste Management depreciates similar buildings using the straight-line method.
4. The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor.
5. Waste Managements incremental borrowing rate is 8% per year. The lessors implicit rate is not known by Waste Management.

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Suppose that in addition to the $73,530 annual rental payments, Waste Management is also required to pay $8,000 for insurance costs each year on the building directly to the lessor, Reyes Warehouse Company. How would this executory cost affect the initial measurement of the lease liability and right-of-use asset? Right-of-use asset SHOW LIST OF ACCOUNTS Now suppose that, at the end of the lease term, Waste Management and Reyes agree that the fair value of the asset is actually $16,000 Record the entry for Waste Management at the end of the lease to return control of the warehouse building to Reyes (assuming the accrual of interest on the lease liability has already been made). (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit Suppose that in addition to the $73,530 annual rental payments, Waste Management is also required to pay $8,000 for insurance costs each year on the building directly to the lessor, Reyes Warehouse Company. How would this executory cost affect the initial measurement of the lease liability and right-of-use asset? Right-of-use asset SHOW LIST OF ACCOUNTS Now suppose that, at the end of the lease term, Waste Management and Reyes agree that the fair value of the asset is actually $16,000 Record the entry for Waste Management at the end of the lease to return control of the warehouse building to Reyes (assuming the accrual of interest on the lease liability has already been made). (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit

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