In: Accounting
Ramsay Corp. (lessor) entered into a lease arrangement with Williams Corp. (lessee) on January 1, 2018. According to the lease arrangement, Ramsay leased a building to Williams for 8 years. The building has an estimated economic life of 40 years with no residual value. The cost of the building was $2,500,000 and it was purchased for cash on January 1, 2018. Its fair value is $2,500,000 and it is to be depreciated on a straight line basis. At the end of the year, Ramsay paid $70,000 in property taxes and $8,700 for insurance. Lease payments of $180,000 per year are made at the end of each year. Both Ramsay and Williams adjust and close books annually at December 31. Ramsay’s implicit interest rate is 7% and is known to Williams.
Instructions