CanLux Connected Corporation entered into a 15-year lease

CanLux Connected Corporation entered into a 15-year lease agreement on January 1, 2020 for a head office. The company is required to make annual payments of $500,000 starting on January 1, 2020. The remaining economic life of the building is 35 years, at which time there will be a $3,000,000 expected residual value. CCC has the option to purchase the building at the end of the lease for $5,000,000, considerably less than the expected fair value at that time. A real estate appraiser determined that the fair value of the building was $7,233,800 on January 1, 2020. The implicit interest rate in the lease is 6% and CCC has an incremental borrowing rate of 7.5%

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