On January 1, 2011, R. L. Bowman, owner of Dick's Market, sold the building the store currently occupies to Adams Investing Company for the current market value of the building of $9,000,000. Prior to the sale, the carrying value of the building was $7,000,000. The estimated remaining useful life of the building is 10 years, with no residual value at that time. Straight-line depreciation is used to depreciate the building.
On the same day as the sale, January 1, 2011, Bowman signed a 10-year noncancelable leaseback agreement that has a 15 percent implicit rate of return for the lessor. The lessee's incremental borrowing rate also is 15 percent. Annual payments begin on January 1, 2011. During 2011, Bowman will pay $10,000 executory costs if the transaction qualifies as a direct-financing lease. If the agreement qualifies as an operating lease, this $10,000 will be paid by the buyer-lessor. For convenience, provide all amounts in your solution in $000.
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The Answer of On January 1, 2011, R. L. Bowman, owner of Dick's Market, sold the building the store currently occupies to Adams Investing Company for the current market value of the building of $9,000,000. Prior to the sale, the carrying value of the building was $7,000,000. The estimated remaining useful life of the building is 10 years, with no residual value at that time. Straight-line depreciation is used to depreciate the building.
On the same day as the sale, January 1, 2011, Bowman signed a 10-year noncancelable leaseback agreement that has a 15 percent implicit rate of return for the lessor. The lessee's incremental borrowing rate also is 15 percent. Annual payments begin on January 1, 2011. During 2011, Bowman will pay $10,000 executory costs if the transaction qualifies as a direct-financing lease. If the agreement qualifies as an operating lease, this $10,000 will be paid by the buyer-lessor. For convenience, provide all amounts in your solution in $000.
Required: