(Accounting for an Operating Lease) On January 1, 2017, a machine was purchased for $900,000 by Young Co. The machine is expected to have an 8-year life with no salvage value. It is to be depreciated on a straight-line basis. The machine was leased to St. Leger Inc. on January 1, 2017, at an annual rental of $210,000. Other relevant information is as follows.1. The lease term is for 3 years.2. Young Co. incurred maintenance and other executory costs of $25,000 in 2017 related to this lease.3. The machine could have been sold by Young Co. for $940,000 instead of leasing it.4. St. Leger is required to pay a rent security deposit of $35,000 and to prepay the last month’s rent of $17,500.Instructions(a) How much should Young Co. report as income before income tax on this lease for 2017?(b) What amount should St. Leger Inc. report for rent expense for 2017 on this lease?
(Accounting for an Operating Lease) On January 1, 2017, a machine was purchased for $900,000 by Young Co. The machine is expected to have an 8-year life with no salvage value. It is to be
1. The lease term is for 3 years.
2. Young Co. incurred maintenance and other executory costs of $25,000 in 2017 related to this lease.
3. The machine could have been sold by Young Co. for $940,000 instead of leasing it.
4. St. Leger is required to pay a rent security deposit of $35,000 and to prepay the last month’s rent of $17,500.
Instructions
(a) How much should Young Co. report as income before income tax on this lease for 2017?
(b) What amount should St. Leger Inc. report for rent expense for 2017 on this lease?
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