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Ball Ltd. purchased land and constructed a service station, at a total cost of $ 450,000. On January 2, 2019, when construction was completed, Ball sold the service station and land to a major oil company for $ 500,000, and immediately leased it back from the oil company. Fair value of the land at the time of the sale was $ 50,000. The lease is a 10-year, non-cancellable lease. Ball uses straight-line amortization for its other assets. The economic life of the station is 15 years with zero residual value. Title to the property will revert back to Ball at the end of the lease. A partial amortization schedule for this lease follows:
-The total lease-related expenses recognized by the lessee during 2020 are (rounded to the nearest dollar)
A) $ 76,863.
B) $ 80,000.
C) $ 81,373.
D) $ 91,863.

Question

Use the following information for questions.
Ball Ltd. purchased land and constructed a service station, at a total cost of $ 450,000. On January 2, 2019, when construction was completed, Ball sold the service station and land to a major oil company for $ 500,000, and immediately leased it back from the oil company. Fair value of the land at the time of the sale was $ 50,000. The lease is a 10-year, non-cancellable lease. Ball uses straight-line amortization for its other assets. The economic life of the station is 15 years with zero residual value. Title to the property will revert back to Ball at the end of the lease. A partial amortization schedule for this lease follows: 
-The total lease-related expenses recognized by the lessee during 2020 are (rounded to the nearest dollar)
A) $ 76,863. 
B) $ 80,000. 
C) $ 81,373. 
D) $ 91,863.

Quizplus · Accepted Answer

The total lease-related expenses recognized by the lessee during 2020 are $76,863, which is the sum of the lease payments and any interest expense related to the lease liability.

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