Hull Co. leased equipment to Riggs Company on May 1, 2013. At that time the collectability of
Question:
Hull Co. leased equipment to Riggs Company on May 1, 2013. At that time the collectability of the minimum lease payments was not reasonably predictable. The lease expires on May 1, 2014. Riggs could have bought the equipment from Hull for $4,000,000 instead of leasing it. Hull's accounting records showed a book value for the equipment on May 1, 2010, of $3,500,000. Hull's depreciation on the equipment in 2013 was $450,000. During 2013, Riggs paid $900,000 in rentals to Hull for the 8-month period. Hull incurred maintenance and other related costs under the terms of the lease of $80,000 in 2013. After the lease with Riggs expires, Hull will lease the equipment to another company for two years.
Ignoring income taxes, what should be the amount of expense incurred by Riggs from this lease for the year ended December 31, 2013?
a. $370,000.
b. $450,000.
c. $820,000.
d. $900,000.
Intermediate Accounting IFRS
ISBN: 978-1119372936
3rd edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield