Question
Blossom Co. purchases land and constructs a service station and car wash for a total of $630000. At January 2, 2018, when construction is completed,
Blossom Co. purchases land and constructs a service station and car wash for a total of $630000. At January 2, 2018, when construction is completed, the facility and land on which it was constructed are sold to a major oil company for $500000 and immediately leased from the oil company by Blossom. Fair value of the land at time of the sale was $42500. The lease is a 10-year, noncancelable lease. Blossom uses straight-line depreciation for its other various business holdings. The economic life of the facility is 15 years with zero salvage value. Title to the facility and land will pass to Blossom at termination of the lease. A partial amortization schedule for this lease is as follows:
Payments | Interest | Amortization | Balance | |||||
Jan. 2, 2018 | $500000 | |||||||
Dec. 31, 2018 | $76204.41 | $50000 | $26204.41 | 473795.59 | ||||
Dec. 31, 2019 | 76204.41 | 47379.56 | 28824.85 | 444970.74 | ||||
Dec. 31, 2020 | 76204.41 | 44497.07 | 31707.34 | 413263.40 |
What is the discount rate implicit in the amortization schedule presented above?
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