On January 1, 2014, equipment was purchased for $1,500,000 by Indy Cycle Corp The equipment is expected to have a 10 year life with no salvage value It is to be depreciated on a straight line basis The machine was leased to Daytona Car, Inc on January 1, 2014, at an annual rental of $260,000 Other ...

a Annual rental revenue 260000 Less Maintenance a ...

On January 1, 2014, equipment was purchased for $1,500,000 by Indy Cycle Corp. The equipment is expected

Question:

On January 1, 2014, equipment was purchased for $1,500,000 by Indy Cycle Corp. The equipment is expected to have a 10-year life with no . It is to be depreciated on a straight-line basis. The machine was leased to Daytona Car, Inc. on January 1, 2014, at an annual rental of $260,000. Other relevant information is as follows.
1. The lease term is for 2 years.
2. Indy Cycle Corp. incurred maintenance and other executory costs of $25,000 in 2014 related to this lease.
3. The machine could have been sold by Indy Cycle Corp. for $1,600,000 instead of leasing it.
4. Daytona Car, Inc. is required to pay a security deposit of $40,000.

Instructions
(a) How much should Indy Cycle Corp. report as income before income tax on this lease for 2014?
(b) What amount should Daytona Car, Inc. report for rent expense for 2014 on this lease?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...