Use the following Annuity Table for question 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 2.005000 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 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.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Use the following Annuity Table for question

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

2.005000

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 

 

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

 

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.

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