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ACC 305 QUIZ 4

ACC 305 QUIZ 4

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Author: Christine Farr
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1. When a company sells property and then leases it back, any gain on the sale should usually be
2. The initial direct costs of leasing
3. 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 $4,000,000; however, the book value to Holt is $3,300,000.(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 $10,000 of executory costs related to taxes on the property.
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


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