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LAC has negotiated a lease agreement with LEC effective January 1,2014.LAC will provide LEC with a special-purpose building for ten (10)years.The lease is non-cancellable; requires LEC to provide maintenance,insurance,taxes,etc.; and stipulates that the building reverts back to LAC's control at the end of the lease.The building cost LAC $200,000 and is expected to have no residual value at the end of the lease.LAC expects a 15% return on investments and the lease qualifies as a direct financing lease.Rents are paid each December 31 starting in 2014.
(a)How much annual rent will the lessee pay (rounded to the nearest dollar)? $______________________________.
(b)Complete the following schedule of lease amortization for the lessee for the first two years:
(c)Complete the following entries for the lessee: January 1,2014,inception of lease.
December 31,2014,first rental payment and lessee's year-end entries (end of the accounting period).
December 31,2014,accrual by lessee of $4,000 taxes on the building and payment of $800 for repairs on the building.
Diversification
An investment strategy to reduce risk by allocating investments amongst various financial instruments, industries, or other categories.
Perspective of Stockholders
The viewpoint or interests of shareholders in a corporation, often focused on return on investment, governance, and financial health.
Offsetting Profits
Earnings that counterbalance or mitigate losses from another aspect of a company’s operations or investments.
Successful Mergers
The combining of two or more companies in a way that results in increased value generation, efficiency gains, and enhanced competitiveness in the market.
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