Alice Foyle, M.D. (lessee), has a noncancelable 20-yearlease with Brownback Realty, Inc. (lessor) for the use of amedical building. Taxes, insurance, and maintenance arepaid by the lessee in addition to the fixed annual payments,of which the present value is equal to the fairvalue of the leased property. At the end of the leaseperiod, title becomes the lessee’s at a nominal price. Consideringthe terms of the lease described above, commenton the nature of the lease transaction and the accountingtreatment that should be accorded it by the lessee.
Alice Foyle, M.D. (lessee), has a noncancelable 20-yearlease with Brownback Realty, Inc. (lessor) for the use of amedical building. Taxes, insurance, and maintenance arepaid by the lessee in addition to the fixed annual payments,of which the present value is equal to the fairvalue of the leased property. At the end of the leaseperiod, title becomes the lessee’s at a nominal price. Consideringthe terms of the lease described above, commenton the nature of the lease transaction and the accountingtreatment that should be accorded it by the lessee.
Chapter2: Income Tax Concepts
Section: Chapter Questions
Problem 51P
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Question
Alice Foyle, M.D. (lessee), has a noncancelable 20-year
lease with Brownback Realty, Inc. (lessor) for the use of a
medical building. Taxes, insurance, and maintenance are
paid by the lessee in addition to the fixed annual payments,
of which the present value is equal to the fair
value of the leased property. At the end of the lease
period, title becomes the lessee’s at a nominal price. Considering
the terms of the lease described above, comment
on the nature of the lease transaction and the accounting
treatment that should be accorded it by the lessee.
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