Use the Following Information for Questions

question 86

Multiple Choice

Use the following information for questions
On January 1, 2016, Yancey, Inc.signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company.The following information pertains to this lease agreement.
(a) The agreement requires equal rental payments at the beginning of each year.
(b) The fair value of the building on January 1, 2016 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.
-Metcalf Company leases a machine from Vollmer Corp.under an agreement which meets the criteria to be a finance lease for Metcalf.The six-year lease requires payment of $102,000 at the beginning of each year, including $15,000 per year for maintenance, insurance, and taxes.The incremental borrowing rate for the lessee is 10%; the lessor's implicit rate is 8% and is known by the lessee.The present value of an annuity due of 1 for six years at 10% is 4.79079.The present value of an annuity due of 1 for six years at 8% is 4.99271.Metcalf should record the leased asset at

• A)$509,256.
• B)$488,661.
• C)$434,366.
• D)$416,799.

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