Reference no: EM132472112
Point 1: Determine which kind of lease , the implicit rate of interest, balances in ROU and lease liability, discount rate and present values regarding a real estate lease. Two partners currently lease one office in a building for manufacturing, they have been given the opportunity to lease out the remaining 2 other offices, giving them access of the entire building. The owner of the building constructed it 10 years ago, and offered them a sale of the building for $470,000.
Point 2: After seeing what a loan from the bank would look like, they turned down the offer as they would have to take a 20 year loan at 9.5%. They instead insisted on leasing it, so the owner got the property appraised at $450,727 which includes an expected residual value of $75,000. The building has a useful remaining life of 25 years, and the owner ended up leasing the building to the partners for 15 years, with annual payments at the beginning of the month for $46,200 due March 1 of each year. The owner did not require that they guarantee the residual value, and there is no option to extend or renew. The partners also made non-required improvements totaling $87,300.
Question 1: From the lessee perspective, what is the discount rate, or implicit rate of interest, lease liability and ROU, and initial entries to make at lease inception under the new lease standards ASC 842.
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