What is the amount of the minimum annual lease payment
Course:- Accounting Basics
Reference No.:- EM131599516

Assignment Help
Expertsmind Rated 4.9 / 5 based on 47215 reviews.
Review Site
Assignment Help >> Accounting Basics

Problem - Advanced Accounting and Reporting-please with explanations

On January 1, 2008, J & J, signed a 10-year noncancelable lease agreement to lease a storage building from Action Co., (a wholly owned subsidiary of J & J)'. Collectability 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.

1. (a) The agreement requires equal rental payments at the end of each year.

2. (b) The fair value of the building on January 1, 2008 is $3,000,000; however, the book value to Action is $2,500,000.

3. (c) The building has an estimated economic life of 10 years, with no residual value. J & J depreciates similar buildings on the straight-line method.

4. (d) At the termination of the lease, the title to the building will be transferred to the lessee.

5. (e) CPA's incremental borrowing rate is 11% per year. Action set the annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by J & J.

6. (f) The yearly rental payment includes $10,000 of executory costs related to taxes on the property.


1. What is the amount of the minimum annual lease payment?

2. What is the amount of the total annual lease payment?

3. Give J & J's initial entry for the lease in 2008.

4. Give Action's initial entry for the lease in 2008.

Put your comment

Ask Question & Get Answers from Experts
Browse some more (Accounting Basics) Materials
After studying this chapter, comment on the issues troubling the GASB by discussing any inconsistencies or other problems you perceive in the standards regarding recognition
In payment the company issued an instalment note payable for this amount, plus interest at 12%p.a. this note was playable in 18 monthly installments starting on 1st July 201
Occasionally, the morals and ethics executives use to manage their businesses are examined and discussed. Unfortunately, the morals that guide the timing of nonoperating eve
The liability is assumed by the partnership. Brad transfers property (basis of $16,000, fair market value of $7,500) for a 25% interest, and Rick transfers cash of $15,000
What does the amount reported for cost of goods sold represent? Is your company a profitable company? How can you tell? Does your company use accrual-based or cash-based acc
Do you believe the legislation enhances the power and prestige of the audit profession, or alternatively, does it decrease both the power and prestige of the profession? Exp
Sean is in the business of buying and selling stocks and bonds. He has a bond of Green Corporation for which he paid $200,000. The bond is currently worth only $50,0
When cash is received from customers in the form of a refundable deposit, the cash account is increased and there is a corresponding increase in: