on January 1,2016, Yancey, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. The following information pertains to this lease agreement.

a) The agreement requires equal rental payments at the beginning of each year.

b) The fair value of the building on January 1,2016 is $4,000,000; however, the book value to Holt is $3,300,000.

c) The building has an estimated economics life of 10 years.Holt estimates a total residual value of $50,000 for the building at the end of the lease term. Yancey guarantees a residual value of $30,000 for Holt. 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. The present value of an annuity due of 1 for ten years at 10% is 6.75902. The present value of an annuity due of 1 for ten years at 11% is 6.53705. The present value of 1 at the end of ten years at 10% is 0.38554. The present value of 1 at the end of ten years at 11% is 0.35218.

f) The yearly rental payment includes $10,000 of executors costs related to taxes on the property.

1. What is the amount of the minimums annual lease payment?

2. How to account for the $10,000 of executory costs?

A. It is lessor's rental income.

B. It is included in lessor's receivable.

C. It is included in lessee's liability.

D. It is recognized as the lessee's expense

3. From the lessee's viewpoint, what type of lease exists in this case?

A. Sales-type lease.

B. Sales-leaseback

C. Fianance lease

D. Operating lease

4. From the lessor's viewpoint, what type of lease is involved?

A. Sales-type lease

B. Sale-leaseback

C.Direct-financing lease

D. Operating lease

5. Yancey, Inc. would record depreciation expense on this storage building in 2016 of (rounded to the nearest dollar.)

A. $0

B. $396,229

C. $399,229

D. $400,000.