Problem
Tau Co. manufactures machines to be sold or leased. On January 1, Tau leased machinery to Upsilon, Inc., for a 5-year period. At the end of the lease term, the machinery is to be transferred to Upsilon. Equal $25,000 payments are due at the end of each of the 5 years. Tau has no material uncertainties, and the likelihood of collecting all lease panyments is high. The implicit rate of the lease is 7% and the cost to Tau is $90,000. The present value factor for an ordinary annuity for 5 periods at 7% is 4.100. What is the lessor's total pretax gross profit from the lease recognized on January 1?