On January 1, 2020, Jeckyll Ltd

question 115

Multiple Choice

On January 1, 2020, Jeckyll Ltd. signs a 8-year non-cancellable lease agreement to lease a storage building from Hyde Inc. Hyde is in the business of leasing/selling property. Collectibility of the lease payments is reasonably assured and no additional costs are to be incurred by the lessor (other than executory costs) . Both the lessor and the lessee are private corporations adhering to ASPE. The following information is available regarding this lease agreement:
1) The agreement requires equal payments at the end of each year.
2) At January 1, 2020, the fair value of the building is $ 1,350,000 and Hyde's book value is $ 1,125,000.
3) The building has an estimated economic life of 8 years, with no residual value. Jeckyll uses straight-line depreciation for all its depreciable assets.
4) At the termination of the lease, title to the building will transfer to the lessee.
5) Jeckyll's incremental borrowing rate is 10%. Hyde Inc. set the annual rental to ensure a 9% rate of return. The lessor's implicit rate is known to Jeckyll.
6) The yearly lease payment includes $ 4,500 executory costs related to taxes on the property.
Rounded to the nearest dollar, how much depreciation expense would Dionne record on this asset for calendar 2020?

• A) $ 0
• B) $ 108,000
• C) $ 168,750
• D) $ 140,625