Metro Company, a dealer in machinery and equipment, leased equipment to Sands, Inc., on July 1, 2013. The lease is appropriately accounted for as a sale by Metro and as a purchase by Sands. The lease is for a 10-year period (the useful life of the asset) expiring June 30, 2023. The first of 10 equal annual payments of $828,000 was made on July 1, 2013. Metro had purchased the equipment for $5,200,000 on January 1, 2013, and established a list selling price of $7,200,000 on the equipment. Assume that the present value at July 1, 2013, of the rent payments over the lease term discounted at 8% (the appropriate interest rate) was $6,000,000.

What is the amount of profit on the sale and the amount of interest income that Metro should record for the year ended December 31, 2013?

a. $300,000 and $206,880

b. $300,000 and $240,000

c. $360,000 and $206,880

d. $360,000 and $240,000

 

Answer rating: 100% (QA)

Depreciation per year Costuseful life 720000010 ... View the full answer