Problem 21-12 In 2013, Grishell Trucking Company negotiated and closed a long-term lease contract for newly constructed truck terminals and freight storage facilities. The buildings were erected to the company's specifications on land owned by the company. On January 1, 2014, Grishell Trucking Company took possession of the lease properties. On January 1, 2014 and 2015, the company made cash payments of $948,000 that were recorded as rental expense Although the terminals have a composite useful life of 40 years, the noncancelable lease runs for 20 years from January 1, 2014, with a bargain-purchase option available upon expiration of the lease. The 20-year lease is effective for the period January 1, 2014, through December 31, 2033. Advance rental payments of $800,000 are payable to the lessor on January 1 of each of the first 10 years of the lease term. Advance rental payments of $320,000 are due on January 1 for each of the last 10 years of the lease. The company has an option to purchase all of these leased facilities for $1 on December 31, 2033 It also must make annual payments to the lessor of $125,000 for property taxes and $23,000 for insurance. The lease was negotiated to assure the lessor a 6% rate of return. Selected present value factors are as follows. For an ordinary periods Annuity of $1 at 6% For $1 at 6% 0.943396 0.943396 0.889996 1.833393 0.627412 6.209794 6.801692 0.591898 7.360087 0.558395 10 0.330513 19 11.158117 20 11.469921 0.311805