Question
On January1, 2019, Murray Manufacturing leased a building for use in its operations from Associated Realty. The 7year, noncancellable lease requires annual lease payments of
On January1, 2019, Murray Manufacturing leased a building for use in its operations from Associated Realty. The 7year, noncancellable lease requires annual lease payments of $25,000, beginning January1, 2019, and at each December 31 thereafter through 2024.
The lease payment includes costs related to property taxes of $1,000. They also include payments for common area maintenance. The observable standalone price for the lease(including the propertytaxes) is $23,000 and the observable standalone price for the common area maintenance is $4,000.
Inaddition, Murray agrees to pay insurance on the building. Murray pays the insurance each year when it receives an invoice from Associated Realty for the insurance amount. On December15, 2019, Murray was billed and paid $3,500 for this insurance. Murray does not make the election to account for each separate leasecomponent, along with its associated nonleasecomponents, as a single lease component.
The lease agreement does not transferownership, nor does it contain a purchase option. The building has a fair value of and an estimated remaining life of 8 years. AssociatedRealty's implicit rate of10% is known to Murray. Round percentages to one decimal place.
What amount of the $25,000 lease payment is used to compute the leaseobligation?
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