Question

In: Accounting

3. Sarena Wilkes, owner of San Jose Café, is negotiating with the lessor regarding the lease...

3. Sarena Wilkes, owner of San Jose Café, is negotiating with the lessor regarding the lease of the building for the next five years. The lessor has proposed the following lease payment options: Monthly fixed lease payment of $2,000 Monthly fixed lease payment of $1,000 plus 3 percent of net sales Monthly variable lease payment of 6 percent of net sales.

a) What is the indifference point among the three proposals?

b) If expected average annual net sales are $350,000, which lease option should be recommended to Sarena?

c) If the expected average net sales are $500,000, which lease option should be recommended to Sarena?

Solutions

Expert Solution

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

An owner of a Downtown Covina office building (“Lessor”) is currently negotiating a six-year lease with...
An owner of a Downtown Covina office building (“Lessor”) is currently negotiating a six-year lease with Chernobai Corporation (“Lessee”) for 20,000 rentable square feet of space. Chernobai Corporation’s offer: Chernobai Corporation would like a base rent of $24 per square foot per year with step-ups of $2 per square foot per year beginning the second year. Downtown Covina Office Building owner would provide full service under the lease terms. Downtown Covina office building’s owner’s counter-offer: The owner of Downtown Covina...
An owner of the Atrium Tower Office Building is currently negotiating a five-year lease with ACME...
An owner of the Atrium Tower Office Building is currently negotiating a five-year lease with ACME Consolidated Corp. for 20,000 rentable square feet of office space. ACME would like a base rent of $20 per square foot with step-ups of $1 per year beginning one year from now. a) What is the present value of cash flows to ATRIUM under the above lease terms? (Assume a 10% discount rate) b) The owner of ATRIUM believes that base rent of $20...
Brief Exercise 15-17 Lessor; effect on earnings; Type B lease At January 1, 2016, Café Med...
Brief Exercise 15-17 Lessor; effect on earnings; Type B lease At January 1, 2016, Café Med leased restaurant equipment from Crescent Corporation under a Eight-year lease agreement. The lease agreement specifies annual payments of $35,000 beginning January 1, 2016, the beginning of the lease, and at each December 31 thereafter through 2023. The equipment was acquired recently by Crescent at a cost of $185,000 (its fair value) and was expected to have a useful life of 12 years with no...
A sporting goods company operates retail stores in the San Francisco and San Jose areas. Customers...
A sporting goods company operates retail stores in the San Francisco and San Jose areas. Customers were asked to rate their shopping experiences. Their results indicated that 15% rated their shopping experience as Poor, 45% as Average, and 40% as Good. In addition, 67% of the customers who rated their experience as Poor came from San Jose, 36% of the customers who rated their experience as Average came from San Jose, and 30% of the customers who rated their experience...
3. (LESSOR ENTRIES FOR FINANCING LEASE WITH A GUARANTEED RESIDUAL) The following facts pertain to a...
3. (LESSOR ENTRIES FOR FINANCING LEASE WITH A GUARANTEED RESIDUAL) The following facts pertain to a non-cancelable lease agreement between Ace Leasing Company and King Company, a lessee. Commencement of Lease Date January 1, 2020 Annual lease payment due at the beginning of the year beginning with January 1, 2020 $137,171 Residual value of equipment at end of lease term, guaranteed by lessee $54,000 Book Value of Lease Equipment on LESSOR books $500,000 Lease term 6 years Economic life of...
In a lease that is recorded as a sales-type lease by the lessor, interest revenue Select...
In a lease that is recorded as a sales-type lease by the lessor, interest revenue Select one: a. Does not arise. b. Should be recognized over the life of the lease by the effective interest method. c. Should be recognized over the life of the lease by the straight-line method. d. Should be recognized in full as revenue at the lease's inception.
Lessor enters into a seven-year lease for equipment with Lessee. Lessor sells and leases the equipment,...
Lessor enters into a seven-year lease for equipment with Lessee. Lessor sells and leases the equipment, which is not specialized in nature and is expected to have an alternative use for Lessor at the end of the lease term. Under the lease: Lessor receives annual lease payments of $25,000, with the first one payable at the commencement of the lease and one payment annually at the lease anniversary date thereafter. Lessor expects the residual value of the equipment to be...
Brief Exercise 15-6 Sales-type lease; lessor; income statement effects [LO15-3] A lease agreement that qualifies as...
Brief Exercise 15-6 Sales-type lease; lessor; income statement effects [LO15-3] A lease agreement that qualifies as a finance lease calls for annual lease payments of $50,000 over a four-year lease term (also the asset’s useful life), with the first payment at January 1, the beginning of the lease. The interest rate is 7%. The lessor’s fiscal year is the calendar year. The lessor manufactured this asset at a cost of $144,000. (FV of $1, PV of $1, FVA of $1,...
Edom Company, the lessor, enters into a lease with Davis Company to lease equipment to Davis...
Edom Company, the lessor, enters into a lease with Davis Company to lease equipment to Davis beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 5 years. The lease is noncancelable and requires annual rental receipts of $100,000 to be made in advance at the beginning of each year. 2. The equipment costs $313,000. The equipment has an estimated life of 6 years and, at the end of the lease...
Edom Company, the lessor, enters into a lease with Davis Company to lease equipment to Davis...
Edom Company, the lessor, enters into a lease with Davis Company to lease equipment to Davis beginning January 1, 2016. The lease terms, provisions, and related events are as follows: 1. The lease term is 5 years. The lease is noncancelable and requires annual rental receipts of $100,000 to be made in advance at the beginning of each year. 2. The equipment costs $313,000. The equipment has an estimated life of 6 years and, at the end of the lease...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT