Solved

Use the Following Information for Questions 54 Through 59

question 63

Multiple Choice

Use the following information for questions 54 through 59. (Annuity tables on page 21-25.)
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.
-From the lessee's viewpoint, what type of lease exists in this case?

Definitions:

Personal Property

Items owned by an individual or entity that are movable and not fixed to real estate, such as furniture, vehicles, and electronics.

Peril

A particular hazard or reason for loss that an insurance policy protects against, for example, fire, theft, or acts of nature.

Professional Insurance

Insurance coverage designed to protect professionals from liability claims resulting from their business activities, such as errors, omissions, or neglect.

Malpractice Insurance

A type of professional liability insurance that provides coverage to healthcare professionals for claims arising from allegations of medical errors or negligence.