On January 1,2014,J.M.Rodriguez,owner of JMR Sound,sold the building the studio currently occupies to Rave Up Events 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 1,2014,Rodriguez 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 1,2014.During 2014,Rodriguez 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 1,2014,J.M.Rodriguez,owner of JMR Sound,sold the building the studio currently occupies to Rave Up Events 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 1,2014,Rodriguez 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 1,2014.During 2014,Rodriguez 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: