In: Accounting
On January 1, 2017, Marin Co. leased a building to Cullumber
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
$2,700,000 (unguaranteed).
2. The leased building has a cost of $3,200,000 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 $275,000 per year and are made at the
beginning of the year.
5. Cullumber has an incremental borrowing rate of 9%, and the rate
implicit in the lease is unknown to Cullumber.
6. Both the lessor and the lessee are on a calendar-year basis.
If Cullumber paid $20,000 to a real estate broker on January 1, 2017, as a fee for finding the lessor, what is the initial measurement of the right-of-use asset?
Right-of-use asset =