Use the Following Information for Questions

question 52

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.
-Yancey, Inc.would record depreciation expense on this storage building in 2016 of (Rounded to the nearest dollar.)

• A)$0.
• B)$330,000.
• C)$400,000.
• D)$650,981.

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Definitions:

Legal Authority

The lawful right given to an individual or body to make decisions, enforce laws, and administer justice within a given jurisdiction.

Suspect

A person thought to possibly be involved in or responsible for a particular crime or wrongdoing.

Dividend Expense

An incorrect term, as dividends are distributions of earnings to shareholders and not an expense. Instead, consider "dividend payment."