Question

Beard Company purchased a machine on January 1, 2014, for $620,000. The machine is expected to have a 10-year life, no residual value, and will be depreciated by the straight-line method. On January 1, 2014, it leased the machine to Child Company for a three-year period at an annual rental of $125,000. Beard could have sold the machine for $817,298 instead of leasing it. Beard incurred maintenance and other executory costs of $5,000 in 2014 under the terms of the lease.

Required:
1. What amount should Beard report as operating profit on this leased asset for the year ended December 31, 2014?
2. Assume that the lease term is eight years instead of three years. What amount should Beard report as operating profit on this leased asset for the year ended December 31, 2014?



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  • CreatedSeptember 10, 2014
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