On January 1, 2025, Wildhorse, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Pina Warehouse Company. Collectibility of the lease payments is reasonably predictable and no important uncertainties surround the 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 of each year. (b) The fair value of the building on January 1, 2025 is $5850000; however, the book value to Pina is $4800000. (c) The building has an estimated economic life of 10 years, with no residual value. Wildhorse depreciates similar buildings using the straight-line method.
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- Determining Type of Lease and Subsequent Accounting On January 1, 2019, Caswell Company signs a 10-year cancelable (at the option of either party) agreement to lease a storage building from Wake Company. The following information pertains to this lease agreement: 1. The agreement requires rental payments of 100,000 at the beginning of each year. 2. The cost and fair value of the building on January 1, 2019, is 2 million. The storage building has not been specialized for Caswell. 3. The building has an estimated economic life of 50 years, with no residual value. Caswell depreciates similar buildings according to the straight-line method. 4. The lease does not contain a renewable option clause. At the termination of the lease, the building reverts to the lessor. 5. Caswells incremental borrowing rate is 14% per year. Wake set the annual rental to ensure a 16% rate of return (the loss in service value anticipated for the term of the lease). Caswell knows the implicit interest rate. 6. Executory costs of 7,000 annually, related to taxes on the property, are paid by Caswell directly to the taxing authority on Dec. 31 of each year. Required: 1. Determine what type of lease this is for the lessee. 2. Prepare appropriate journal entries on the lessees books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2019 and 2020.On January 1, 2025, Wildhorse, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Ayayai Warehouse Company, Collectibility of the lease payments is reasonably predictable and no important uncertainties surround the 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 of each year. (b) The fair value of the building on January 1, 2025 is $6450000; however, the book value to Ayayai is $5400000. (c) The building has an estimated economic life of 10 years, with no residual value. Wildhorse 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) Wildhorse's incremental borrowing rate is 10% per year. Ayayai Warehouse Co. set the annual rental to ensure a 8% rate of return. The implicit rate of the lessor is known by Wildhorse, Inc. (f) In…On January 1, 2025, Sandhill, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Pronghorn 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, 2025 is $5800000; however, the book value to Holt is $4750000. (c) The building has an estimated economic life of 10 years, with no residual value. Sandhill 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) Sandhill's incremental borrowing rate is 10% per year. Pronghorn Warehouse Co. set the annual rental to ensure a 8% rate of return. The implicit rate of the lessor is known by Sandhill, Inc. (f) In…
- On January 1, 2025, Blossom, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Blue 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, 2025 is $6500000; however, the book value to Holt is $5450000. (c) The building has an estimated economic life of 10 years, with no residual value. Blossom 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) Blossom's incremental borrowing rate is 12% per year. Blue Warehouse Co. set the annual rental to ensure a 8% rate of return. The implicit rate of the lessor is known by Blossom, Inc. (f) In addition to…On January 1, 2021, Sandhill, 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, 2018 is $5800000; however, the book value to Holt is $4750000.(c) The building has an estimated economic life of 10 years, with no residual value. Sandhill 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) Sandhill’s incremental borrowing rate is 10% per year. Holt Warehouse Co. set the annual rental to insure a 9% rate of return. The implicit rate of the lessor is known by Sandhill, Inc.(f) The yearly rental…On January 1, 2025, Ivanhoe, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Flint 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, 2025 is $5500000; however, the book value to Holt is $4450000. (c) The building has an estimated economic life of 10 years, with no residual value. Ivanhoe 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) Ivanhoe's incremental borrowing rate is 10% per year. Flint Warehouse Co. set the annual rental to ensure a 8% rate of return. The implicit rate of the lessor is known by Ivanhoe, Inc. (f) In addition to…
- On January 1, 2021, Sunland, 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, 2021 is $5700000; however, the book value to Holt is $4650000.(c) The building has an estimated economic life of 10 years, with no residual value. Sunland 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) Sunland’s incremental borrowing rate is 12% 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 Sunland, Inc.(f) The yearly rental…On January 1, 2021, 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, 2021 is $6,000,000; however, the book value to Holt is $4,950,000.(c) The building has an estimated economic life of 10 years, with no residual value. Yancey 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) 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 Yancy (f) The yearly rental payment…On January 1, 2021, Blossom, 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, 2018 is $6500000; however, the book value to Holt is $5450000.(c) The building has an estimated economic life of 10 years, with no residual value. Blossom 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) Blossom’s incremental borrowing rate is 12% per year. Holt Warehouse Co. set the annual rental to insure a 11% rate of return. The implicit rate of the lessor is known by Blossom, Inc.(f) The yearly rental…
- On January 1, 2021, Sheridan, 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, 2021 is $6250000; however, the book value to Holt is $5200000.(c) The building has an estimated economic life of 10 years, with no residual value. Sheridan 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) Sheridan’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 Sheridan, Inc.(f) The yearly rental…On January 1, 2021, Oriole, 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, 2021 is $5550000; however, the book value to Holt is $4500000. (c) The building has an estimated economic life of 10 years, with no residual value. Oriole 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) Oriole's incremental borrowing rate is 12% per year. Holt Warehouse Co. set the annual rental to insure a 11% rate of return. The implicit rate of the lessor is known by Oriole, Inc. () The yearly rental…On January 1, 2021, Pharoah, 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, 2021 is $5600000; however, the book value to Holt is $4550000.(c) The building has an estimated economic life of 10 years, with no residual value. Pharoah 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) Pharoah’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 Pharoah, Inc.(f) The yearly rental…