On January 1, 2017, a machine was purchased for $874,400 by Blue Co. The machine is expected to… 1 answer below »
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Kieso, Intermediate Accounting, 16e
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ASSIGNMENT RESOURCES Chapter 21 Homework Exercise 21-2 (Part Level Submission) Exercise 21-4 Exercise 21-8 (Part Level Submission)
Problem 21-3 (Part Level Submission)
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Intermediate Accounting II (Acct 323 – 324 – 326)
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Exercise 21-13 On January 1, 2017, a machine was purchased for $874,400 by Blue 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 Kingbird Inc. on January 1, 2017, at an annual rental of $213,600. Other relevant information is as follows.
1. The lease term is for 3 years. 2. Blue Co. incurred maintenance and other executory costs of $25,300 in 2017 related to this lease. 3. The machine could have been sold by Blue Co. for $914,400 instead of leasing it. 4. Kingbird is required to pay a rent security deposit of $35,600 and to prepay the last month's rent of $17,800.
(a) How much should Blue Co. report as income before income tax on this lease for 2017?
Income before income tax
(b) What amount should Kingbird Inc. report for rent expense for 2017 on this lease?
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