On January 1, 2020, Commonwealth Inc. leases equipment to Tap Inc. The equipment has a fair value of $156,000, a carrying value of $80,000, an economic life of four years, and a lease term of three years. Commonwealth incurred $800 in initial direct costs. Commonwealth's incremental borrowing rate is 11% and there is a purchase option at the end of the lease of $10,000 that is reasonably expected to be executed by Tap at that time. The annual lease payment is $33,809.39, with the first payment due immediately on January 1, 2020. What is the Income before taxes recognized in 2020, by Commonwealth Inc. from the lease?
On January 1, 2020, Commonwealth Inc. leases equipment to Tap Inc. The equipment has a fair value of $156,000, a carrying value of $80,000, an economic life of four years, and a lease term of three years. Commonwealth incurred $800 in initial direct costs. Commonwealth's incremental borrowing rate is 11% and there is a purchase option at the end of the lease of $10,000 that is reasonably expected to be executed by Tap at that time. The annual lease payment is $33,809.39, with the first payment due immediately on January 1, 2020. What is the Income before taxes recognized in 2020, by Commonwealth Inc. from the lease?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On January 1, 2020, Commonwealth Inc. leases equipment to Tap Inc. The equipment has a
fair value of $156,000, a carrying value of $80,000, an economic life of four years, and a lease
term of three years. Commonwealth incurred $800 in initial direct costs. Commonwealth's
incremental borrowing rate is 11% and there is a purchase option at the end of the lease of
$10,000 that is reasonably expected to be executed by Tap at that time. The annual lease
payment is $33,809.39, with the first payment due immediately on January 1, 2020.
What is the Income before taxes recognized in 2020, by Commonwealth Inc. from the lease?
A. 75,200
B. $76,000
C. $88,641
D. $80,000
O A
B
OC
O
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