Exercise 21-14 On February 20, 2017, Kingbird Inc. purchased a machine for $1,44

Question

Exercise 21-14

On February 20, 2017, Kingbird Inc. purchased a machine for $1,449,600 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 Oriole Company on March 1, 2017, for a 4-year period at a monthly rental of $18,900. 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. Kingbird paid $27,840 of commissions associated with negotiating the lease in February 2017.

(a) What expense should Oriole Company record as a result of the facts above for the year ended December 31, 2017?

$

(b) What income or loss before income taxes should Kingbird record as a result of the facts above for the year ended December 31, 2017? (Hint:Amortize commissions over the life of the lease.)

Rent Expense

$

Explanation / Answer

SOLUTION

(A) Since this is an operating lease, Oriole Company will expense the lease payments as incurred-

(B)

Monthly lease payments $18,900 No. of months (March-December) 10 months Total Rent Expense $189,000

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