Use the following Annuity Table for questions 1 through 6.

Future Value of Ordinary Annuity of 1

Period 5% 6% 8% 10% 12%

1 1.00000 1.00000 1.00000 1.00000 1.00000

2 2.05000 2.06000 2.08000 2.10000 2.12000

3 3.15250 3.18360 3.24640 3.31000 3.37440

4 4.31013 4.37462 4.50611 4.64100 4.77933

5 5.52563 5.63709 5.86660 6.10510 6.35285

6 6.80191 6.97532 7.33592 7.71561 8.11519

7 8.14201 8.39384 8.92280 9.48717 10.08901

8 9.54911 9.89747 10.63663 11.43589 12.29969

9 11.02656 11.49132 12.48756 13.57948 14.77566

10 12.57789 13.18079 14.48656 15.93743 17.54874

Present Value of an Ordinary Annuity of 1

Period 5% 6% 8% 10% 12%

1 .95238 .94340 .92593 .90909 .89286

2 1.85941 1.83339 1.78326 1.73554 1.69005

3 2.72325 2.67301 2.57710 2.48685 2.40183

4 3.54595 3.46511 3.31213 3.16986 3.03735

5 4.32948 4.21236 3.99271 3.79079 3.60478

6 5.07569 4.91732 4.62288 4.35526 4.11141

7 5.78637 5.58238 5.20637 4.86842 4.56376

8 6.46321 6.20979 5.74664 5.33493 4.96764

9 7.10782 6.80169 6.24689 5.75902 5.32825

10 7.72173 7.36009 6.71008 6.14457 5.65022

Use the following information for questions 1 through 6.

On January 1, 2015, Yancey, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement.

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

(b) The fair value of the building on January 1, 2015 is $3,000,000; the book value to Holt is also $3,000,000.

(c) The building has an estimated economic life of 10 years, with no residual value. 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) Yanceys 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.

(f) The yearly rental payment includes $8,000 of executory costs related to taxes on the property.

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

a. $443,851

b. $451,851

c. $488,236

d. $591,801

2. What is the amount of the total annual lease payment?

a. $443,851

b. $451,851

c. $488,236

d. $591,801

3. From the lessees viewpoint, what type of lease exists in this case?

a. Sales-type lease

b. Sale-leaseback

c. Capital lease

d. Operating lease

4. From the lessors 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 2015 of (Rounded to the nearest dollar.)

a. $0.

b. $300,000.

c. $400,000.

d. $451,851.

6. If the lease were nonrenewable, there was no purchase option, title to the building does not pass to the lessee at termination of the lease and the lease were only for seven years, what type of lease would this be for the lessee?

a. Sales-type lease

b. Direct-financing lease

c. Operating lease

d. Capital lease