Problem XXXXXXXXXXPart Level Submission) In 2019, Ivanhoe Trucking Company negotiated and closed a long-term lease contract for newly constructed truck terminals and freight storage facilities. The...

In 2019, Ivanhoe 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 the company. On January 1, 2020, Ivanhoe Trucking took possession of the lease properties.


Although the terminals have a composite useful life of 40 years, the non-cancelable lease runs for 20 years from January 1, 2020, with a bargain purchase option available upon expiration of the lease.


The 20-year lease is effective for the period January 1, 2020, through December 31, 2039. Rental payments of $848,000 are payable to the lessor on January 1 of each of the first 10 years of the lease term. Advance rental payments of $339,200 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, 2039. The lease was negotiated to assure the lessor a 6% rate of return.


Selected present value factors are as follows.

Periods		For an Ordinary Annuity of $1 at 6%		For $1 at 6%
1		0.943396			0.943396
2		1.833393			0.889996
8		6.209794			0.627412
9		6.801692			0.591898
10		7.360087			0.558395
19		11.158116			0.330513
20		11.469921			0.311805