Question

In: Accounting

On January 1, 2021, San Diego Daily leased an office building from First Land Corp. •...

On January 1, 2021, San Diego Daily leased an office building from First Land Corp. • First Land Corp purchased the building from Computer Dell Corporation at a cost of $4,790,790. The building is estimated to be useful for 30 years. • San Diego Daily’s borrowing rate for similar transactions is 10%. • The lease agreement specifies four annual payments of $1,000,000 beginning January 1, 2021, the beginning of the lease, and at each December 31 from 2021 through 2023. How much asset should San Diego Daily recognize from this lease contract?

a. $0 b. $2,486,850 c. $3,486,850 d. $4,000,000

Please show work step by step

Solutions

Expert Solution

Answer is $0.

Explanation:-

San Diego Daily leased office building value = $4790790

Estimated maximum usage period = 30 Years

Lease period for San Diego Daily = From 1st January 2020 to 31st December 2023

Oppertunity cost rate = 10%

Lease payment system

1st January 2021 - $1000000

31st December 2021 - $1000000

31st December 2022 - $1000000

31st December 2023 - $1000000

Total = $4000000

Since the date or Financial year of asset booking or correct lease period are not mentioned, we cannot consider any advance payment in books of accounts. Further the building has the nature of borrow. So, there will be no inclusion of this office in total assets of San Diego Daily.

Provided:-

If office building leased for 30 years, we can book the paid amount (as on date) whenver we cose books.

If the lease include a condition of purchase after lease, the same as above can book after deducting depreciation amount and provision for maintenance of building.

ekkarill92 answered 1 year ago
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