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On January 1, 2019, Murray Manufacturing Leased a Building for Use

question 89

Multiple Choice

On January 1, 2019, Murray Manufacturing leased a building for use in its operations from Associated Realty. The 7-year, noncancellable lease requires annual lease payments of $22,000, beginning January 1, 2019, and at each December 31 thereafter through 2024. The lease payment includes costs related to property taxes of $2,000. They also include payments for common area maintenance. The observable standalone price for the lease (including the property taxes) is $20,000 and the observable standalone price for the common area maintenance is $4,000.
In addition, Murray agrees to pay insurance on the building. Murray pays the insurance each year when it receives an invoice from Associated Realty for the insurance amount. On December 15, 2019, Murray was billed and paid $2,500 for this insurance. Murray does not make the election to account for each separate lease component, along with its associated nonlease components, as a single lease component.
The lease agreement does not transfer ownership, nor does it contain a purchase option. The building has a fair value of $80,000 and an estimated remaining life of 8 years. Associated Realty's implicit rate of 10% is known to Murray. Round percentages to one decimal place.
Assuming this is classified by Murray as a finance lease, at what amount should the right-of-use asset and lease liability be recorded?

Definitions:

Repurchase

The action of buying back previously sold shares or goods, often by the company that issued or sold them initially.

Cash Dividends

Distributions of a corporation's earnings to shareholders in the form of cash.

Preferred Stock

A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock, usually with dividends that are paid out before those to shareholders of common stock.

Common Stock

Common stock is a type of equity ownership in a corporation, representing a claim on part of the company's profits and conferring voting rights.