Question - On January 1, 2011, Larsen Corporation sold a machine to Parson Corporation and simultaneously leased it back for ten years. The following information is available regarding the lease:
Estimated remaining useful life at December 31, 2010 10 years
Sales price $90,000
Carrying value at December 31, 2010 $52,500
Annual rental under leaseback $14,600
Interest rate implicit in the lease 10%
Present value of the lease rentals $ 89,711
($14,600 for 10 years at 10%)
How much profit should Larsen recognize on January 1, 2011, on the sale of the machine?
A) $0
B) $37,211
C) $90,000
D) $37,500