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What is the amount of the total annual lease payment

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Question - On January 1, 2034, Colter, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Hull Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. 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, 2034 is P1,800,000; however, the book value to Hull is P1,500,000.

(c) The building has an estimated economic life of 10 years, with no residual value. Colter 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) Colter's incremental borrowing rate is 11% per year. Hull Warehouse Co. set the annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by Colter, Inc.

(f) The yearly rental payment includes P6,000 of executory costs related to taxes on the property.

Required - What is the amount of the total annual lease payment?

Reference no: EM132854966

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