In 2024, Monty Trucking Company negotiated and closed a long-term lease contract for newly constructed truck terminals and freight storage facilities. The buildings were erected to the company's specifications on land owned by another company. On January 1, 2025, Monty Trucking took possession of the leased properties. Although the terminals have a composite useful life of 40 years, the non-cancelable lease runs for 20 years from January 1, 2025, with a bargain purchase option available upon expiration of the lease. The 20-year lease is effective for the period January 1, 2025, through December 31, 2044. Rental payments of $816,000 are payable to the lessor on January 1 of each of the first 10 years of the lease term. Advance rental payments of $326,400 are due on January 1 for each of the last 10 years of the lease. The company has an option to purchase all of these leased facilities for $1 on December 31. 2044. The lease was negotiated to assure the lessor a 6% rate of return.

In 2024, Monty Trucking Company negotiated and closed a long-term lease contract for newly constructed truck terminals and freight storage facilities. The buildings were erected to the company's specifications on land owned by another company. On January 1, 2025, Monty Trucking took possession of the leased properties. Although the terminals have a composite useful life of 40 years, the non-cancelable lease runs for 20 years from January 1, 2025, with a bargain purchase option available upon expiration of the lease. The 20-year lease is effective for the period January 1, 2025, through December 31, 2044. Rental payments of $816,000 are payable to the lessor on January 1 of each of the first 10 years of the lease term. Advance rental payments of $326,400 are due on January 1 for each of the last 10 years of the lease. The company has an option to purchase all of these leased facilities for $1 on December 31. 2044. The lease was negotiated to assure the lessor a 6% rate of return.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 1E: Determining Type of Lease and Subsequent Accounting On January 1, 2019, Caswell Company signs a...

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