Case Scenario:
On February 20,2007 Barbara Brent Inc., purchased a machine for $1,500,000 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 Rudy Company on March 1, 2007, for a 4 year period at a monthly rental of $19,500. 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. Brent paid $30,000 of commissions associated with negoitating the lease in February 2007.
Instructions:
Q1. What expense should Rudy Company record as a result of the facts above for the year ended December 31, 2007? Show supporitng computations in good form
Q2. What Income or loss before income taxes should Brent record as a result of the facts above for the year ended December 31, 2007? (Hint: Amortize commissions over the life of the lease.)