Exercise 21A-17 a-c (Part Level Submission) On January 1, 2017, Windsor Co. leas

Question

Exercise 21A-17 a-c (Part Level Submission) On January 1, 2017, Windsor Co. leased a building to Wildhorse Inc. The relevant information related to the lease is as follows. 1. The lease arrangement is for 10 years. The building is expected to have a residual value at the end of the lease of $3,400,000 (unguaranteed). 2. The leased building has a cost of $3,900,000 and was purchased for cash on January 1, 2017. 3. The building is depreciated on a straight-line basis. Its estimated economic life is 50 years with no salvage value. 4. Lease payments are $285,000 per year and are made at the beginning of the year. 5. Wildhorse has an incremental borrowing rate of 9%, and the rate implicit in the lease is unknown to Wildhorse 6 Both the lessor and the lessee are on a calendar-year basis.

Explanation / Answer

Particulars Amount($) Initial Lease Liability    3,400,000 Add: Payments made before commencement date of Lease    3,900,000 Add: Initial direct costs incurred by the lessee          40,000 Add: Estimated costs for dismantling, removing & restoring                   -   Right of use asset    7,340,000

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