Q Proprietorinc (the lessee) enters into a 10 year lease of a property with an option...

 

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Q₂ Proprietorinc (the lessee) enters into a 10 year lease of a property with an option to extend the contract for 5 years. Lease payments are $50,000 per year, payable at the beginning of each year. At the commencement date of the lease, Proprietorinc concludes that it is not reasonably certain to exercise the option to extend the lease. To obtain the lease, 9 Proprietorinc incurs initial direct costs of $20,000, a commission paid to the real estate agent that arranged the lease. As an incentive to enter into the lease, the lessor agrees to reimburse Proprietorinc at lease commencement, for a portion ($5,000) of the real estate commission of and for leasehold improvements ($7,000). The rate implicit in the lease is not readily determinable. The lessee's incremental borrowing rate is 5 per cent per annum. How is the lease liability measured at lease commencement date? Select the one correct option and then select Submit. O At the present value of the remaining 9 payments of $50,000 discounted at the interest rate of 5%, less real estate commission of $5,000 and leasehold improvements of $7,000 At the present value of the remaining 9 payments of $50,000 discounted at the interest rate of 5% At the present value of the remaining 10 payments of $50,000 discounted at the interest rate of 5% less real estate commission of $5,000 At the present value of the remaining 14 payments of $50,000 discounted at the interest rate of 5% Submit Q₂ Proprietorinc (the lessee) enters into a 10 year lease of a property with an option to extend the contract for 5 years. Lease payments are $50,000 per year, payable at the beginning of each year. At the commencement date of the lease, Proprietorinc concludes that it is not reasonably certain to exercise the option to extend the lease. To obtain the lease, 9 Proprietorinc incurs initial direct costs of $20,000, a commission paid to the real estate agent that arranged the lease. As an incentive to enter into the lease, the lessor agrees to reimburse Proprietorinc at lease commencement, for a portion ($5,000) of the real estate commission of and for leasehold improvements ($7,000). The rate implicit in the lease is not readily determinable. The lessee's incremental borrowing rate is 5 per cent per annum. How is the lease liability measured at lease commencement date? Select the one correct option and then select Submit. O At the present value of the remaining 9 payments of $50,000 discounted at the interest rate of 5%, less real estate commission of $5,000 and leasehold improvements of $7,000 At the present value of the remaining 9 payments of $50,000 discounted at the interest rate of 5% At the present value of the remaining 10 payments of $50,000 discounted at the interest rate of 5% less real estate commission of $5,000 At the present value of the remaining 14 payments of $50,000 discounted at the interest rate of 5% Submit

Answer rating: 100% (QA)

Background Information The lease Commencement date is the date on which the lessor makes an underlyi... View the full answer