On January 1, 2020, Nelson Co. leased a building to Wise 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 $3,500,000 (unguaranteed).
2. The leased building has a cost of $4,000,000 and was purchased for cash on January 1, 2020.
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. Wise has an incremental borrowing rate of 8%, and the rate implicit in the lease is unknown to Wise.
6. Both the lessor and the lessee are on a calendar-year basis. Get Business help Today