Use the following information for questions 8 through 13. (Annuity tables.) Future Value of Ordinary Annuity of
Question:
Use the following information for questions 8 through 13. (Annuity tables.)
Future Value of Ordinary Annuity of 1
Period5%6%8%10%12%
11.000001.000001.000001.000001.00000
22.050002.060002.080002.100002.12000
33.152503.183603.246403.310003.37440
44.310134.374624.506114.641004.77933
55.525635.637095.866606.105106.35285
66.801916.975327.335927.715618.11519
78.142018.393848.922809.4871710.08901
89.549119.8974710.6366311.4358912.29969
911.0265611.4913212.4875613.5794814.77566
1012.5778913.1807914.4865615.9374317.54874
Present Value of an Ordinary Annuity of 1
Period5%6%8%10%12%
1.95238.94340.92593.90909.89286
21.859411.833391.783261.735541.69005
32.723252.673012.577102.486852.40183
43.545953.465113.312133.169863.03735
54.329484.212363.992713.790793.60478
65.075694.917324.622884.355264.11141
75.786375.582385.206374.868424.56376
86.463216.209795.746645.334934.96764
97.107826.801696.246895.759025.32825
107.721737.360096.710086.144575.65022
On January 1, 2018, Marc, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Geraldo 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, 2018 is $6,000,000; however, the book value to Geraldo is $4,950,000.
(c)The building has an estimated economic life of 10 years, with no residual value. Marc depreciates similar buildings using the straight-line method.
(d)At the termination of the lease, the title to the building will be transferred to the lessee.
(e)Marc's incremental borrowing rate is 11% per year. Geraldo Warehouse Co. set the annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by Marc, Inc.
(f)The yearly rental payment includes $15,000 of executory costs related to taxes on the property.
1.What is the annual lease payment excluding executory costs? (Rounded to the nearest dollar.)
a.$272,703
b.$872,703
c.$887,703
d.$902,703
2.What is the total annual lease payment?
a.$272,703
b.$872,703
c.$887,703
d.$902,703
3.From the lessee's viewpoint, what type of lease in this?
a.Sales-type lease
b.Sale-leaseback
c.Finance 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.Marc, Inc. would record amortization expense on this asset in 2018 of (Rounded to the nearest dollar.)
a.$0.
b.$495,000.
c.$610,139.
d.$976,471.
6.If the lease was nonrenewable, there was no bargain purchase option, title to the building does not pass to the lessee at termination of the lease and the lease term was only for eight years, what type of lease would this be for the lessee?
a.Sales-type lease
b.Direct-financing lease
c.Operating lease
d.finance lease