Metro Company, a dealer in machinery and equipment, leased equipment to Sands, I
ID: 2483641 • Letter: M
Question
Metro Company, a dealer in machinery and equipment, leased equipment to Sands, Inc., on
July 1, 2015. The lease is appropriately accounted for as a sales-type lease by Metro and as a capital lease by Sands. The lease is for a 10-year period (the useful life of the asset) expiring June 30, 2025. The first of 10 equal annual payments of $552,000 was made on July 1, 2015. Metro had purchased the equipment for $3,500,000 on January 1, 2015, and established a list selling price of $4,800,000 on the equipment. Assume that the present value at July 1, 2015, of the rent payments over the lease term discounted at 8% (the appropriate interest rate) was $4,000,000.
19. Assuming that Sands, Inc. uses straight-line depreciation, what is the amount of deprecia-tion and interest expense that Sands should record for the year ended December 31, 2015?
a. $200,000 and $137,920
b. $200,000 and $160,000
c. $2,400,000 and $137,920
d. $2,400,000 and $160,000
20. What is the amount of profit on the sale and the amount of interest revenue that Metro should record for the year ended December 31, 2015?
a. $0 and $137,920
b. $500,000 and $137,920
c. $500,000 and $160,000
d. $800,000 and $320,000
Explanation / Answer
19. answer is option b
20. answer is option a