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) 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. 3. From the lessee’s 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 lessor’s viewpoint, what type of lease is involved? a. Sales-type lease b. Sale-leaseback c. Direct-financing lease d. Operating lease

Use the following Annuity Table for questions 1 through 6.

Future Value of Ordinary Annuity of 1

Period    5%    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

Period    5%    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

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) 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.

3. From the lessee’s 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 lessor’s viewpoint, what type of lease is involved?

a. Sales-type lease

b. Sale-leaseback

c. Direct-financing lease

d. Operating lease