Shamrock Company leases a building and land. The lease term is 7 years and the a

Question

Shamrock Company leases a building and land. The lease term is 7 years and the annual fixed payments are $720,000. The lease arrangement gives Shamrock the right to purchase the building and land for $12,750,000 at the end of the lease. Based on an economic analysis of the lease at the commencement date, Shamrock is reasonably certain that the fair value of the leased assets at the end of lease term will be much higher than $12,750,000.

What are the total lease payments in this lease arrangement?

Explanation / Answer

Total lease payments

= Lease payment per annum * lease period

= $720000 * 7

= $5040000

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