Question :
The subsequent facts pertain to a noncancelable lease agreement between Franklin Financing Company and Jones Dairy Products, a lessee, for a milking system.
Inception date of lease is October 1, 2004.
Lease term is 8 years.
Economic life of leased equipment is 10 years.
Fair value of asset on inception date is $175,000.
Cost of equipment to Franklin is $160,000.
Unguaranteed residual value at end of lease term is $15,000.
Estimated salvage value at end of economic life is $ 10,000.
Franklin's implicit rate (unknown to Jones) is 9%.
Jones's incremental borrowing rate is 8%.
There are no important uncertainties surrounding costs yet to be incurred by Franklin. Thus, collectibility of the lease payments from Jones is not sensibly predictable or assured. Jones assumes liability for all executory costs, which amount to $9,500 per year. Executory costs are paid each October 1 beginning in 2004 and lease payments are to be paid each 30st September starting September 30, 2005. The asset can revert to Franklin at the end of the lease term. The straight-line depreciation technique is used for all equipment by both Jones and Franklin. Franklin's and Jones's accounting periods end on 31st December and September 30, correspondingly.
Pertaining solely to this lease, Determine the amount of net income that Franklin will report on its income statement for the year ended 31st December, 2004?
Pertaining solely to this lease, evaluate the amount of net loss that Jones can report on its income statement for the year ended September 30, 2005?