Question

Exercise 21-14 Your answer is partially correct. Try again. On February 20, 2017, Grouper Inc. purchased a machine for $1,402,800 for the purpose of leasing it. The machine is expected to have a 10-year life, no residual value, and will be depreciated on the straight- line basis. The machine was leased to Monty Company on March 1, 2017, for a 4-year period at a monthly rental of $19,700. There is no provision for the renewal of the lease or purchase of the machine by the lessee at the expiration of the lease term. Grouper paid $31,680 of commissions associated with negotiating the lease in February 2017 (a) What expense should Monty Company record as a result of the facts above for the year ended December 31, 2017? Rent Expense 197,00 (b) What income or loss before income taxes should Grouper record as a result of the facts above for the year ended December 31, 2017? (Hint: Amortize commissions over the life of the lease.]) Income from lease before taxes 56,060

Answer 1

(a) Rent Expense in the books of Grouper Inc. for the year ended December 31,2017 :-

= Monthly Installment * No. of months = $19,700*10 = $197,000

No. of months are from March 1,2017 to Dec. 31,2017 i.e. 10 months.

(b)

Rent Revenue (19,700 x 10)	$197,000
Less: Commission Expense [(31,680 / 48) x 10)]	6,600
Less: Depreciation Expense [(1,402,800 / 120) x 10]	116,900
Income from lease before taxes	$73,500