Reference no: EM132495439
On January 1, 2011, Nelson, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from ABC Company. The following information pertains to this lease agreement.
a) The agreement requires equal rental payments at the end of each year.
b) The fair value of the building on January 1, 2011 is $3,000,000.
c) The building has an estimated economic life of 10 years, with no residual value. Nelson depreciates similar buildings on the straight-line method.
d) At the termination of the lease, the title to the building will be transferred to the lessee.
e) ABC Co. set the annual rental to insure a 10% rate of return.
Question 1) What is the amount of the minimum annual lease payment? (Rounded to the nearest dollar.)
Question 2) From the lessee's viewpoint, what type of lease exists in this case?
Question 3) If the lease were nonrenewable, there was no purchase option, title to the building does not pass to the lessee at termination of the lease and the lease were only for eight months, what type of lease would this be for the lessee?