On January 1, 2020, Hot Fuss Corp. purchased a building for $900,000, with the intention of leasing
Question:
On January 1, 2020, Hot Fuss Corp. purchased a building for $900,000, with the intention of leasing it. The building is expected to have a 20 year life, no residual value, and will be depreciated on a straight-line basis. On April 1, 2020, under a cancellable lease, Hot Fuss leased the building to Sam's Town Company for $300,000 a year ($25,000 a month) for a four-year period ending March 31, 2024. Sam's Town paid $300,000 to Hot Fuss on April 1, 2020. During calendar 2020, Hot Fuss incurred $30,000 in maintenance and other executory costs under the provisions of the lease. This lease is properly classified as an operating lease by both parties.
Required
- 1. How much income before income taxes will Hot Fuss Corp. report from this lease for calendar 2020?
- 2. How much rent expense will Sam's Town report in connection with this lease for calendar 2020?
Financial Reporting and Analysis
ISBN: 978-1259722653
7th edition
Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer