Ch. 20 and 21 Computation

Presented below is pension information related to Woods, Inc. for the year 2015:
Service cost $82,000
Interest on projected benefit obligation 54,000
Interest on vested benefits 24,000
Amortization of prior service cost due to increase in benefits 12,000
Expected return on plan assets 18,000
The amount of pension expense to be reported for 2015 is

Kraft, Inc. sponsors a defined-benefit pension plan. The following data relates to the operation of the plan for the year 2015.
Service cost $ 230,000
Contributions to the plan 220,000
Actual return on plan assets 180,000
Projected benefit obligation (beginning of year) 2,400,000
Fair value of plan assets (beginning of year) 1,600,000
The expected return on plan assets and the settlement rate were both 10%. The amount of pension expense reported for 2015 is

Presented below is information related to Jensen Inc. pension plan for 2015.
Service cost $1,020,000
Actual return on plan assets 210,000
Interest on projected benefit obligation 390,000
Amortization of net loss 90,000
Amortization of prior service cost due to increase in benefits 165,000
Expected return on plan assets 180,000
What amount should be reported for pension expense in 2015?

Barton, Inc. received the following information from its pension plan trustee concerning the operation of the company's defined-benefit pension plan for the year ended December 31, 2015.
January 1, 2015 December 31, 2015
Fair value of pension plan assets $4,200,000 $4,500,000
Projected benefit obligation 4,800,000 5,160,000
Accumulated benefit obligation 840,000 1,020,000
Accumulated OCI – (Gains / Losses) -0- (90,000)
The service cost component of pension expense for 2015 is $450,000 and the amortization of prior service cost due to an increase in benefits is $60,000. The settlement rate is 10% and the expected rate of return is 9%. What is the amount of pension expense for 2015?

The following information for Cooper Enterprises is given below:
December 31, 2015
Assets and obligations
Plan assets (at fair value) $400,000
Accumulated benefit obligation 740,000
Projected benefit obligation 800,000
Other Items
Pension asset / liability, January 1, 2015 20,000
Contributions 240,000
Accumulated other comprehensive loss 335,800
There were no actuarial gains or losses at January 1, 2015. The average remaining service life of employees is 10 years.

What is the pension expense that Cooper Enterprises should report for 2015?

The following information for Cooper Enterprises is given below:
December 31, 2015
Assets and obligations
Plan assets (at fair value) $400,000
Accumulated benefit obligation 740,000
Projected benefit obligation 800,000
Other Items
Pension asset / liability, January 1, 2015 20,000
Contributions 240,000
Accumulated other comprehensive loss 335,800
There were no actuarial gains or losses at January 1, 2015. The average remaining service life of employees is 10 years.

What is the amount that Cooper Enterprises should report as its pension liability on its balance sheet as of December 31, 2015?

The following information for Cooper Enterprises is given below:
December 31, 2015
Assets and obligations
Plan assets (at fair value) $400,000
Accumulated benefit obligation 740,000
Projected benefit obligation 800,000
Other Items
Pension asset / liability, January 1, 2015 20,000
Contributions 240,000
Accumulated other comprehensive loss 335,800
There were no actuarial gains or losses at January 1, 2015. The average remaining service life of employees is 10 years.

The amortization of Other Comprehensive Loss for 2016 is:

The following information is related to the pension plan of Long, Inc. for 2015.
Actual return on plan assets $200,000
Amortization of net gain 82,500
Amortization of prior service cost due to increase in benefits 150,000
Expected return on plan assets 230,000
Interest on projected benefit obligation 362,500
Service cost 850,000
Pension expense for 2015 is

Presented below is pension information for Green Company for the year 2015:
Expected return on plan assets $24,000
Interest on vested benefits 15,000
Service cost 50,000
Interest on projected benefit obligation 21,000
Amortization of prior service cost due to increase in benefits 18,000
The amount of pension expense to be reported for 2015 is

Hubbard, Inc. received the following information from its pension plan trustee concerning the operation of the company's defined-benefit pension plan for the year ended December 31, 2015.
1/1/15 12/31/15
Projected benefit obligation $11,400,000 $11,760,000
Pension assets (at fair value) 6,000,000 6,900,000
Accumulated benefit obligation 2,400,000 2,760,000
Net (gains) and losses -0- 240,000
The service cost component of pension expense for 2015 is $890,000 and the amortization of prior service cost due to an increase in benefits is $180,000. The settlement rate is 10% and the expected rate of return is 8%. What is the amount of pension expense for 2015?

The following data are for the pension plan for the employees of Lockett Company.
1/1/14 12/31/14 12/31/15
Accumulated benefit obligation $2,500,000 $2,600,000 $3,400,000
Projected benefit obligation 2,700,000 2,800,000 3,700,000
Plan assets (at fair value) 2,300,000 3,000,000 3,300,000
AOCL – net loss -0- 480,000 500,000
Settlement rate (for year) 10% 9%
Expected rate of return (for year) 8% 7%
Lockett’s contribution was $420,000 in 2015 and benefits paid were $375,000. Lockett
estimates that the average remaining service life is 15 years.

The following data are for the pension plan for the employees of Lockett Company.
1/1/14 12/31/14 12/31/15
Accumulated benefit obligation $2,500,000 $2,600,000 $3,400,000
Projected benefit obligation 2,700,000 2,800,000 3,700,000
Plan assets (at fair value) 2,300,000 3,000,000 3,300,000
AOCL – net loss -0- 480,000 500,000
Settlement rate (for year) 10% 9%
Expected rate of return (for year) 8% 7%
Lockett’s contribution was $420,000 in 2015 and benefits paid were $375,000. Lockett
estimates that the average remaining service life is 15 years.

Assume that the actual return on plan assets in 2015 was $265,000. The unexpected gain on plan assets in 2015 was

The following data are for the pension plan for the employees of Lockett Company.
1/1/14 12/31/14 12/31/15
Accumulated benefit obligation $2,500,000 $2,600,000 $3,400,000
Projected benefit obligation 2,700,000 2,800,000 3,700,000
Plan assets (at fair value) 2,300,000 3,000,000 3,300,000
AOCL – net loss -0- 480,000 500,000
Settlement rate (for year) 10% 9%
Expected rate of return (for year) 8% 7%
Lockett’s contribution was $420,000 in 2015 and benefits paid were $375,000. Lockett
estimates that the average remaining service life is 15 years.

The corridor for 2015 was $300,000. The amount of AOCI-net loss amortized in 2015 was

On January 1, 2015, Newlin Co. has the following balances:
Projected benefit obligation $2,100,000
Fair value of plan assets 1,800,000
The settlement rate is 10%. Other data related to the pension plan for 2015 are:
Service cost $180,000
Amortization of prior service costs due to increase in benefits 60,000
Contributions 300,000
Benefits paid 135,000
Actual return on plan assets 237,000
Amortization of net gain 18,000

The balance of the projected benefit obligation at December 31, 2015 is

On January 1, 2015, Newlin Co. has the following balances:
Projected benefit obligation $2,100,000
Fair value of plan assets 1,800,000
The settlement rate is 10%. Other data related to the pension plan for 2015 are:
Service cost $180,000
Amortization of prior service costs due to increase in benefits 60,000
Contributions 300,000
Benefits paid 135,000
Actual return on plan assets 237,000
Amortization of net gain 18,000

The fair value of plan assets at December 31, 2015 is

Rathke, Inc. has a defined-benefit pension plan covering its 50 employees. Rathke agrees to amend its pension benefits. As a result, the projected benefit obligation increased by $2,400,000. Rathke determined that all its employees are expected to receive benefits under the plan over the next 5 years. In addition, 20% are expected to retire or quit each year. Assuming that Rathke uses the years-of-service method of amortization for prior service cost, the amount reported as amortization of prior service cost in year one after the amendment is

The following information relates to the pension plan for the employees of Turner Co.:
1/1/14 12/31/14 12/31/15
Accum. benefit obligation $6,160,000 $6,440,000 $8,400,000
Projected benefit obligation 6,510,000 6,972,000 9,338,000
Fair value of plan assets 5,950,000 7,280,000 8,036,000
AOCI – net (gain) or loss -0- (1,008,000) (1,120,000)
Settlement rate (for year) 11% 11%
Expected rate of return (for year) 8% 7%
Turner estimates that the average remaining service life is 16 years. Turner's contribution was $882,000 in 2015 and benefits paid were $658,000.

The interest cost for 2015 is

The following information relates to the pension plan for the employees of Turner Co.:
1/1/14 12/31/14 12/31/15
Accum. benefit obligation $6,160,000 $6,440,000 $8,400,000
Projected benefit obligation 6,510,000 6,972,000 9,338,000
Fair value of plan assets 5,950,000 7,280,000 8,036,000
AOCI – net (gain) or loss -0- (1,008,000) (1,120,000)
Settlement rate (for year) 11% 11%
Expected rate of return (for year) 8% 7%
Turner estimates that the average remaining service life is 16 years. Turner's contribution was $882,000 in 2015 and benefits paid were $658,000.

The actual return on plan assets in 2015 is

The following information relates to the pension plan for the employees of Turner Co.:
1/1/14 12/31/14 12/31/15
Accum. benefit obligation $6,160,000 $6,440,000 $8,400,000
Projected benefit obligation 6,510,000 6,972,000 9,338,000
Fair value of plan assets 5,950,000 7,280,000 8,036,000
AOCI – net (gain) or loss -0- (1,008,000) (1,120,000)
Settlement rate (for year) 11% 11%
Expected rate of return (for year) 8% 7%
Turner estimates that the average remaining service life is 16 years. Turner's contribution was $882,000 in 2015 and benefits paid were $658,000.

The unexpected gain or loss on plan assets in 2015 is

The following information relates to the pension plan for the employees of Turner Co.:
1/1/14 12/31/14 12/31/15
Accum. benefit obligation $6,160,000 $6,440,000 $8,400,000
Projected benefit obligation 6,510,000 6,972,000 9,338,000
Fair value of plan assets 5,950,000 7,280,000 8,036,000
AOCI – net (gain) or loss -0- (1,008,000) (1,120,000)
Settlement rate (for year) 11% 11%
Expected rate of return (for year) 8% 7%
Turner estimates that the average remaining service life is 16 years. Turner's contribution was $882,000 in 2015 and benefits paid were $658,000.

The corridor for 2015 is

The following information relates to the pension plan for the employees of Turner Co.:
1/1/14 12/31/14 12/31/15
Accum. benefit obligation $6,160,000 $6,440,000 $8,400,000
Projected benefit obligation 6,510,000 6,972,000 9,338,000
Fair value of plan assets 5,950,000 7,280,000 8,036,000
AOCI – net (gain) or loss -0- (1,008,000) (1,120,000)
Settlement rate (for year) 11% 11%
Expected rate of return (for year) 8% 7%
Turner estimates that the average remaining service life is 16 years. Turner's contribution was $882,000 in 2015 and benefits paid were $658,000.

The amount of AOCI (net gain) amortized in 2015 is

Presented below is information related to Decker Manufacturing Company as of December 31, 2015:
Projected benefit obligation $850,000
Accumulated OCI -net gain 300,000
Accumulated OCI (PSC) 405,000
The amount for the prior service cost is related to an increase in benefits. The fair value of the pension plan assets is $600,000.
The pension asset / liability reported on the balance sheet at December 31, 2015 is

Presented below is pension information related to Waters Company as of December 31, 2015:
Accumulated benefit obligation $3,000,000
Projected benefit obligation 3,500,000
Plan assets (at fair value) 3,750,000
Accumulated OCI (G / L) 100,000
The amount to be reported as Pension Asset / Liability as of December 31, 2015 is

Foster Corporation received the following report from its actuary at the end of the year:
December 31, 2014 December 31, 2015
Projected benefit obligation $2,000,000 $2,200,000
Accumulated benefit obligation 1,300,000 1,480,000
Fair value of pension plan assets 1,380,000 1,440,000

The amount reported as the pension liability at December 31, 2014 is

Foster Corporation received the following report from its actuary at the end of the year:
December 31, 2014 December 31, 2015
Projected benefit obligation $2,000,000 $2,200,000
Accumulated benefit obligation 1,300,000 1,480,000
Fair value of pension plan assets 1,380,000 1,440,000

The amount reported as the pension liability at December 31, 2015 is

The following information relates to Jackson, Inc.:
For the Year Ended December 31,
2014 2015
Plan assets (at fair value) $1,360,000 $1,824,000
Pension expense 570,000 450,000
Projected benefit obligation 1,620,000 1,934,000
Annual contribution to plan 600,000 450,000
Accumulated OCI (PSC) 480,000 420,000

The amount reported as the liability for pensions on the December 31, 2014 balance sheet is

The following information relates to Jackson, Inc.:
For the Year Ended December 31,
2014 2015
Plan assets (at fair value) $1,360,000 $1,824,000
Pension expense 570,000 450,000
Projected benefit obligation 1,620,000 1,934,000
Annual contribution to plan 600,000 450,000
Accumulated OCI (PSC) 480,000 420,000

The amount reported as the liability for pensions on the December 31, 2015 balance sheet is

Presented below is information related to Noble Inc. as of December 31, 2015.
Accumulated OCI (G/L) $ 90,000
Projected benefit obligation 3,650,000
Accumulated benefit obligation 3,420,000
Vested benefits 1,620,000
Plan assets (at fair value) 3,354,000
Accumulated OCI (PSC) -0-

The amount reported as the pension liability on Noble's balance sheet at December 31, 2015 is as follows:

Rossi Company has a defined-benefit plan. At the end of 2015, it has determined the following information related to its pension plan:
Projected benefit obligation $730,000
Accumulated benefit obligation 660,000
Fair value of pension plan assets 610,000

The amount of pension liability that is reported in Rossi's balance sheet at the end of 2015 is

On January 1, 2015, Parks Co. has the following balances:
Projected benefit obligation $4,200,000
Fair value of plan assets 3,750,000

The settlement rate is 10%. Other data related to the pension plan for 2015 are:

Service cost $240,000
Amortization of prior service costs 54,000
Contributions 270,000
Benefits paid 250,000
Actual return on plan assets 264,000
Amortization of net gain 18,000

The balance of the projected benefit obligation at December 31, 2015 is

On January 1, 2015, Parks Co. has the following balances:
Projected benefit obligation $4,200,000
Fair value of plan assets 3,750,000

The settlement rate is 10%. Other data related to the pension plan for 2015 are:

Service cost $240,000
Amortization of prior service costs 54,000
Contributions 270,000
Benefits paid 250,000
Actual return on plan assets 264,000
Amortization of net gain 18,000

The fair value of plan assets at December 31, 2015 is

Huggins Company has the following information at December 31, 2015 related to its pension plan:
Projected benefit obligation $4,000,000
Accumulated benefit obligation 3,200,000
Plan assets (fair value) 4,350,000
Accumulated OCI (PSC) 300,000

The amount of pension asset / liability Huggins Company would recognize at December 31, 2015 is

The following pension plan information is for Farr Company at December 31, 2015.
Projected benefit obligation $8,500,000
Accumulated benefit obligation 7,500,000
Plan assets (at fair value) 6,150,000
Accumulated OCI (PSC) 540,000
Pension expense for 2015 3,000,000
Contribution for 2015 2,400,000

The amount to be reported as the liability for pensions on the December 31, 2015 balance sheet is

The following facts relate to the Patton Co. postretirement benefits plan for 2015:
Service cost $180,000
Discount rate 9%
APBO, January 1, 2015 $1,500,000
EPBO, January 1, 2015 $2,000,000
Benefit payments to employees $115,000

The amount of postretirement expense for 2015 is

The following facts relate to the postretirement benefits plan of Keller, Inc. for 2015:
Service cost $730,000
Discount rate 8%
APBO, January 1, 2015 $4,000,000
EPBO, January 1, 2015 $4,800,000
Average remaining service to full eligibility 20 years
Average remaining service to expected retirement 25 years
The amount of postretirement expense for 2015 is

The following facts relate to the Gamble Co. postretirement benefits plan for 2015:
Service cost $136,000
Discount rate 10%
EPBO, January 1, 2015 $1,095,000
APBO, January 1, 2015 $900,000
Actual return on plan assets in 2015 $31,500
Expected return on plan assets in 2015 $24,000

The amount of postretirement expense for 2015 is

The following information pertains to Hopson Co.'s pension plan:
Actuarial estimate of projected benefit obligation at 1/1/15 $72,000
Assumed discount rate 10%
Service costs for 2015 $28,000
Pension benefits paid during 2015 $15,000
If no change in actuarial estimates occurred during 2015, Hopson's projected benefit obligation at December 31, 2015 was

Logan Corp., a company whose stock is publicly traded, provides a noncontributory defined-benefit pension plan for its employees. The company's actuary has provided the following information for the year ended December 31, 2015:
Projected benefit obligation $700,000
Accumulated benefit obligation 525,000
Fair value of plan assets 825,000
Service cost 240,000
Interest on projected benefit obligation 24,000
Amortization of prior service cost 60,000
Expected and actual return on plan assets 82,500
The market-related asset value equals the fair value of plan assets. No contributions have been made for 2015 pension cost. In its December 31, 2015 balance sheet, Logan should report a pension asset / liability of

At December 31, 2015, the following information was provided by the Vargas Corp. pension plan administrator:
Fair value of plan assets $4,500,000
Accumulated benefit obligation 5,580,000
Projected benefit obligation 7,400,000
What is the amount of the pension liability that should be shown on Vargas' December 31, 2013 balance sheet?

On December 1, 2015, Goetz Corporation leased office space for 10 years at a monthly rental of $90,000. On that date Goetz paid the landlord the following amounts:
Rent deposit $ 90,000
First month’s rent 90,000
Last month’s rent 90,000
Installation of new walls and offices 720,000
$990,000
The entire amount of $990,000 was charged to rent expense in 2015. What amount should Goetz have charged to expense for the year ended December 31, 2015?

On January 1, 2015, Dean Corporation signed a ten-year noncancelable lease for certain machinery. The terms of the lease called for Dean to make annual payments of $150,000 at the end of each year for ten years with the title passing to Dean at the end of this period. The machinery has an estimated useful life of 15 years and no salvage value. Dean uses the straight-line method of depreciation for all of its fixed assets. Dean accordingly accounted for this lease transaction as a capital lease. The lease payments were determined to have a present value of $1,006,512 at an effective interest rate of 8%. With respect to this capitalized lease, Dean should record for 2015

On January 1, 2015, Yancey, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement.
(a) The agreement requires equal rental payments at the beginning each year.
(b) The fair value of the building on January 1, 2015 is $4,000,000; however, the book value to Holt is $3,300,000.
(c) The building has an estimated economic life of 10 years, with no residual value. Yancey depreciates similar buildings on the straight-line method.
(d) At the termination of the lease, the title to the building will be transferred to the lessee.
(e) Yancey’s incremental borrowing rate is 11% per year. Holt Warehouse Co. set the annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by Yancey, Inc.
(f) The yearly rental payment includes $10,000 of executory costs related to taxes on the property.

What is the amount of the minimum annual lease payment? (Rounded to the nearest dollar.)

On January 1, 2015, Yancey, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement.
(a) The agreement requires equal rental payments at the beginning each year.
(b) The fair value of the building on January 1, 2015 is $4,000,000; however, the book value to Holt is $3,300,000.
(c) The building has an estimated economic life of 10 years, with no residual value. Yancey depreciates similar buildings on the straight-line method.
(d) At the termination of the lease, the title to the building will be transferred to the lessee.
(e) Yancey’s incremental borrowing rate is 11% per year. Holt Warehouse Co. set the annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by Yancey, Inc.
(f) The yearly rental payment includes $10,000 of executory costs related to taxes on the property.

What is the amount of the total annual lease payment?

On January 1, 2014, Sauder Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Sauder to make annual payments of $150,000 at the beginning of each year for five years with the title passing to Sauder at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Sauder uses the straight-line method of depreciation for all of its fixed assets. Sauder accordingly accounts for this lease transaction as a capital lease. The minimum lease payments were determined to have a present value of $625,479 at an effective interest rate of 10%.

In 2015, Sauder should record interest expense of

On January 1, 2015, Yancey, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement.
(a) The agreement requires equal rental payments at the beginning each year.
(b) The fair value of the building on January 1, 2015 is $4,000,000; however, the book value to Holt is $3,300,000.
(c) The building has an estimated economic life of 10 years, with no residual value. Yancey depreciates similar buildings on the straight-line method.
(d) At the termination of the lease, the title to the building will be transferred to the lessee.
(e) Yancey’s incremental borrowing rate is 11% per year. Holt Warehouse Co. set the annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by Yancey, Inc.
(f) The yearly rental payment includes $10,000 of executory costs related to taxes on the property.

From the lessee’s viewpoint, what type of lease exists in this case?

On January 1, 2015, Yancey, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement.
(a) The agreement requires equal rental payments at the beginning each year.
(b) The fair value of the building on January 1, 2015 is $4,000,000; however, the book value to Holt is $3,300,000.
(c) The building has an estimated economic life of 10 years, with no residual value. Yancey depreciates similar buildings on the straight-line method.
(d) At the termination of the lease, the title to the building will be transferred to the lessee.
(e) Yancey’s incremental borrowing rate is 11% per year. Holt Warehouse Co. set the annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by Yancey, Inc.
(f) The yearly rental payment includes $10,000 of executory costs related to taxes on the property.

From the lessor’s viewpoint, what type of lease is involved?

On January 1, 2015, Yancey, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement.
(a) The agreement requires equal rental payments at the beginning each year.
(b) The fair value of the building on January 1, 2015 is $4,000,000; however, the book value to Holt is $3,300,000.
(c) The building has an estimated economic life of 10 years, with no residual value. Yancey depreciates similar buildings on the straight-line method.
(d) At the termination of the lease, the title to the building will be transferred to the lessee.
(e) Yancey’s incremental borrowing rate is 11% per year. Holt Warehouse Co. set the annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by Yancey, Inc.
(f) The yearly rental payment includes $10,000 of executory costs related to taxes on the property.

Yancey, Inc. would record depreciation expense on this storage building in 2015 of (Rounded to the nearest dollar.)

On January 1, 2015, Yancey, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement.
(a) The agreement requires equal rental payments at the beginning each year.
(b) The fair value of the building on January 1, 2015 is $4,000,000; however, the book value to Holt is $3,300,000.
(c) The building has an estimated economic life of 10 years, with no residual value. Yancey depreciates similar buildings on the straight-line method.
(d) At the termination of the lease, the title to the building will be transferred to the lessee.
(e) Yancey’s incremental borrowing rate is 11% per year. Holt Warehouse Co. set the annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by Yancey, Inc.
(f) The yearly rental payment includes $10,000 of executory costs related to taxes on the property.

If the lease were nonrenewable, there was no purchase option, title to the building does not pass to the lessee at termination of the lease and the lease were only for eight years, what type of lease would this be for the lessee?

Metcalf Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to be a capital lease for Metcalf. The six-year lease requires payment of $136,000 at the beginning of each year, including $20,000 per year for maintenance, insurance, and taxes. The incremental borrowing rate for the lessee is 10%; the lessor’s implicit rate is 8% and is known by the lessee. The present value of an annuity due of 1 for six years at 10% is 4.79079. The present value of an annuity due of 1 for six years at 8% is 4.99271. Metcalf should record the leased asset at

On January 1, 2014, Ogleby Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Ogleby to make annual payments of $90,000 at the beginning of each year for five years with title passing to Ogleby at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Ogleby uses the straight-line method of depreciation for all of its fixed assets. Ogleby accordingly accounts for this lease transaction as a capital lease. The minimum lease payments were determined to have a present value of $375,289 at an effective interest rate of 10%.

With respect to this capitalized lease, for 2015 Ogleby should record

On December 31, 2014, Lang Corporation leased a ship from Fort Company for an eight-year period expiring December 30, 2022. Equal annual payments of $300,000 are due on December 31 of each year, beginning with December 31, 2014. The lease is properly classified as a capital lease on Lang ‘s books. The present value at December 31, 2014 of the eight lease payments over the lease term discounted at 10% is $1,760,528. Assuming all payments are made on time, the amount that should be reported by Lang Corporation as the total obligation under capital leases on its December 31, 2015 balance sheet is

On January 1, 2014, Sauder Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Sauder to make annual payments of $150,000 at the beginning of each year for five years with the title passing to Sauder at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Sauder uses the straight-line method of depreciation for all of its fixed assets. Sauder accordingly accounts for this lease transaction as a capital lease. The minimum lease payments were determined to have a present value of $625,479 at an effective interest rate of 10%.

In 2014, Sauder should record interest expense of

On December 31, 2015, Kuhn Corporation leased a plane from Bell Company for an eight-year period expiring December 30, 2022. Equal annual payments of $300,000 are due on December 31 of each year, beginning with December 31, 2015. The lease is properly classified as a capital lease on Kuhn’s books. The present value at December 31, 2015 of the eight lease payments over the lease term discounted at 10% is $1,760,528. Assuming the first payment is made on time, the amount that should be reported by Kuhn Corporation as the lease liability on its December 31, 2015 balance sheet is

On January 1, 2014, Ogleby Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Ogleby to make annual payments of $90,000 at the beginning of each year for five years with title passing to Ogleby at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Ogleby uses the straight-line method of depreciation for all of its fixed assets. Ogleby accordingly accounts for this lease transaction as a capital lease. The minimum lease payments were determined to have a present value of $375,289 at an effective interest rate of 10%.

With respect to this capitalized lease, for 2014 Ogleby should record

Emporia Corporation is a lessee with a capital lease. The asset is recorded at $810,000 and has an economic life of 8 years. The lease term is 5 years. The asset is expected to have a fair value of $270,000 at the end of 5 years, and a fair value of $90,000 at the end of 8 years. The lease agreement provides for the transfer of title of the asset to the lessee at the end of the lease term. What amount of depreciation expense would the lessee record for the first year of the lease?

Pisa, Inc. leased equipment from Tower Company under a four-year lease requiring equal annual payments of $172,076, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4-year useful life and no salvage value. If Pisa, Inc.’s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Pisa, Inc.) is 8%, what is the amount recorded for the leased asset at the lease inception?
PV Annuity Due PV Ordinary Annuity
8%, 4 periods 3.57710 3.31213
10%, 4 periods 3.48685 3.16986

Pisa, Inc. leased equipment from Tower Company under a four-year lease requiring equal annual payments of $172,076, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4-year useful life and no salvage value. Pisa, Inc.’s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Pisa, Inc.) is 8%. Assuming that this lease is properly classified as a capital lease, what is the amount of interest expense recorded by Pisa, Inc. in the first year of the asset’s life?
PV Annuity Due PV Ordinary Annuity
8%, 4 periods 3.57710 3.31213
10%, 4 periods 3.48685 3.16986

Pisa, Inc. leased equipment from Tower Company under a four-year lease requiring equal annual payments of $172,076, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4 year useful life and no salvage value. Pisa, Inc.’s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Pisa, Inc.) is 8%. Assuming that this lease is properly classified as a capital lease, what is the amount of principal reduction recorded when the second lease payment is made in Year 2?
PV Annuity Due PV Ordinary Annuity
8%, 4 periods 3.57710 3.31213
10%, 4 periods 3.48685 3.16986

Pisa, Inc. leased equipment from Tower Company under a four-year lease requiring equal annual payments of $172,076, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4-year useful life and no salvage value. Pisa, Inc.’s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Pisa, Inc.) is 8%. Pisa, Inc. uses the straight-line method to depreciate similar assets. What is the amount of depreciation expense recorded by Pisa, Inc. in the first year of the asset’s life?
PV Annuity Due PV Ordinary Annuity
8%, 4 periods 3.57710 3.31213
10%, 4 periods 3.48685 3.16986

Haystack, Inc. manufactures machinery used in the mining industry. On January 2, 2015 it leased equipment with a cost of $320,000 to Silver Point Co. The 5-year lease calls for a 10% down payment and equal annual payments at the end of each year. The equipment has an expected useful life of 5 years. Silver Point’s incremental borrowing rate is 10%, and it depreciates similar equipment using the double-declining balance method. The selling price of the equipment is $520,000, and the rate implicit in the lease is 8%, which is known to Silver Point Co. What is the amount of interest expense recorded by Silver Point Co. for the year ended December 31, 2015?
PV Annuity Due PV Ordinary Annuity PV Single Sum
8%, 5 periods 4.31213 3.99271 .68508
10%, 5 periods 4.16986 3.79079 .62092

Haystack, Inc. manufactures machinery used in the mining industry. On January 2, 2015 it leased equipment with a cost of $320,000 to Silver Point Co. The 5-year lease calls for a 10% down payment and equal annual payments of $146,518 at the end of each year. The equipment has an expected useful life of 5 years. Silver Point’s incremental borrowing rate is 10%, and it depreciates similar equipment using the double-declining balance method. The selling price of the equipment is $520,000, and the rate implicit in the lease is 8%, which is known to Silver Point Co. What is the book value of the leased asset at December 31, 2015?

Haystack, Inc. manufactures machinery used in the mining industry. On January 2, 2015 it leased equipment with a cost of $320,000 to Silver Point Co. The 5-year lease calls for a 10% down payment and equal annual payments at the end of each year. The equipment has an expected useful life of 5 years. If the selling price of the equipment is $520,000, and the rate implicit in the lease is 8%, what are the equal annual payments?
PV Annuity Due PV Ordinary Annuity PV Single Sum
8%, 5 periods 4.31213 3.99271 .68508
10%, 5 periods 4.16986 3.79079 .62092

Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2015 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement:
(a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $287,432 are due on January 1 of each year.
(b) The fair value of the machine on January 1, 2015, is $800,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease.
(c) Alt depreciates all machinery it owns on a straight-line basis.
(d) Alt’s incremental borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates.
(e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful.

What type of lease is this from Alt Corporation’s viewpoint?

Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2015 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement:
(a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $287,432 are due on January 1 of each year.
(b) The fair value of the machine on January 1, 2015, is $800,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease.
(c) Alt depreciates all machinery it owns on a straight-line basis.
(d) Alt’s incremental borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates.
(e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful.

If Alt accounts for the lease as an operating lease, what expenses will be recorded as a consequence of the lease during the fiscal year ended December 31, 2015?

Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2015 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement:
(a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $287,432 are due on January 1 of each year.
(b) The fair value of the machine on January 1, 2015, is $800,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease.
(c) Alt depreciates all machinery it owns on a straight-line basis.
(d) Alt’s incremental borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates.
(e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful.

If the present value of the future lease payments is $800,000 at January 1, 2015, what is the amount of the reduction in the lease liability for Alt Corp. in the second full year of the lease if Alt Corp. accounts for the lease as a capital lease? (Rounded to the nearest dollar.)

Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2015 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement:
(a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $287,432 are due on January 1 of each year.
(b) The fair value of the machine on January 1, 2015, is $800,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease.
(c) Alt depreciates all machinery it owns on a straight-line basis.
(d) Alt’s incremental borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates.
(e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful.

From the viewpoint of Yates, what type of lease agreement exists?

Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2015 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement:
(a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $287,432 are due on January 1 of each year.
(b) The fair value of the machine on January 1, 2015, is $800,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease.
(c) Alt depreciates all machinery it owns on a straight-line basis.
(d) Alt’s incremental borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates.
(e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful.

If Yates records this lease as a direct-financing lease, what amount would be recorded as Lease Receivable at the inception of the lease?

Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2015 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement:
(a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $287,432 are due on January 1 of each year.
(b) The fair value of the machine on January 1, 2015, is $800,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease.
(c) Alt depreciates all machinery it owns on a straight-line basis.
(d) Alt’s incremental borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates.
(e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful.

Which of the following lease-related revenue and expense items would be recorded by Yates if the lease is accounted for as an operating lease?

Hook Company leased equipment to Emley Company on July 1, 2014, for a one-year period expiring June 30, 2015, for $60,000 a month. On July 1, 2015, Hook leased this piece of equipment to Terry Company for a three-year period expiring June 30, 2018, for $75,000 a month. The original cost of the equipment was $4,800,000. The equipment, which has been continually on lease since July 1, 2010, is being depreciated on a straight-line basis over an eight-year period with no salvage value. Assuming that both the lease to Emley and the lease to Terry are appropriately recorded as operating leases for accounting purposes, what is the amount of income (expense) before income taxes that each would record as a result of the above facts for the year ended December 31, 2015?
Hook Emley Terry

Hull Co. leased equipment to Riggs Company on May 1, 2015. At that time the collectibility of the minimum lease payments was not reasonably predictable. The lease expires on May 1, 2016. Riggs could have bought the equipment from Hull for $4,800,000 instead of leasing it. Hull’s accounting records showed a book value for the equipment on May 1, 2012, of $4,200,000. Hull’s depreciation on the equipment in 2015 was $540,000. During 2015, Riggs paid $1,080,000 in rentals to Hull for the 8-month period. Hull incurred maintenance and other related costs under the terms of the lease of $96,000 in 2015. After the lease with Riggs expires, Hull will lease the equipment to another company for two years.

Ignoring income taxes, the amount of expense incurred by Riggs from this lease for the year ended December 31, 2015, should be

Hull Co. leased equipment to Riggs Company on May 1, 2015. At that time the collectibility of the minimum lease payments was not reasonably predictable. The lease expires on May 1, 2016. Riggs could have bought the equipment from Hull for $4,800,000 instead of leasing it. Hull’s accounting records showed a book value for the equipment on May 1, 2012, of $4,200,000. Hull’s depreciation on the equipment in 2015 was $540,000. During 2015, Riggs paid $1,080,000 in rentals to Hull for the 8-month period. Hull incurred maintenance and other related costs under the terms of the lease of $96,000 in 2015. After the lease with Riggs expires, Hull will lease the equipment to another company for two years.

The income before income taxes derived by Hull from this lease for the year ended December 31, 2015, should be

On January 2, 2014, Gold Star Leasing Company leases equipment to Brick Co. with 5 equal annual payments of $80,000 each, payable beginning January 2 31, 2014. Brick Co. agrees to guarantee the $50,000 residual value of the asset at the end of the lease term. Brick’s incremental borrowing rate is 10%, however it knows that Gold Star’s implicit interest rate is 8%. What journal entry would Gold Star make at January 2, 2014 assuming this is a direct–financing lease?

PV Annuity Due PV Ordinary Annuity PV Single Sum
8%, 5 periods 4.31213 3.99271 .68508
10%, 5 periods 4.16986 3.79079 .62092

Mays Company has a machine with a cost of $500,000 which also is its fair value on the date the machine is leased to Park Company. The lease is for 6 years and the machine is estimated to have an unguaranteed residual value of $50,000. If the lessor’s interest rate implicit in the lease is 12%, the six beginning-of-the-year lease payments would be

On January 2, 2014, Gold Star Leasing Company leases equipment to Brick Co. with 5 equal annual payments of $80,000 each, payable beginning January 2, 2014. Brick Co. agrees to guarantee the $50,000 residual value of the asset at the end of the lease term. Brick’s incremental borrowing rate is 10%, however it knows that Gold Star’s implicit interest rate is 8%. What journal entry would Brick Co. make at January 2, 2014 to record the lease?
PV Annuity Due PV Ordinary Annuity PV Single Sum
8%, 5 periods 4.31213 3.99271 .68508
10%, 5 periods 4.16986 3.79079 .62092

On January 2, 2014, Gold Star Leasing Company leases equipment to Brick Co. with 5 equal annual payments of $80,000 each, payable beginning January 2, 2014. Brick Co. agrees to guarantee the $50,000 residual value of the asset at the end of the lease term. Brick’s incremental borrowing rate is 10%, however it knows that Gold Star’s implicit interest rate is 8%. What journal entry would Brick Co. make at January 1, 2015 to record the second lease payment?
PV Annuity Due PV Ordinary Annuity PV Single Sum
8%, 5 periods 4.31213 3.99271 .68508
10%, 5 periods 4.16986 3.79079 .62092

Geary Co. leased a machine to Dains Co. Assume the lease payments were made on the basis that the residual value was guaranteed and Geary gets to recognize all the profits. At the end of the lease term, before the lessee transfers the asset to the lessor, the leased asset and obligation accounts have the following balances:
Leased equipment $400,000
Less accumulated depreciation--capital lease 384,000
$ 16,000
Interest payable $ 1,520
Lease liability 14,480
$16,000
If, at the end of the lease, the fair value of the residual value is $9,800, what gain or loss should Geary record?

Harter Company leased machinery to Stine Company on July 1, 2015, for a ten-year period expiring June 30, 2025. Equal annual payments under the lease are $150,000 and are due on July 1 of each year. The first payment was made on July 1, 2013. The rate of interest used by Harter and Stine is 9%. The cash selling price of the machinery is $1,050,000 and the cost of the machinery on Harter’s accounting records was $930,000. Assuming that the lease is appropriately recorded as a sale for accounting purposes by Harter, what amount of interest revenue would Harter record for the year ended December 31, 2015?

Pye Company leased equipment to the Polan Company on July 1, 2015, for a ten-year period expiring June 30, 2025. Equal annual payments under the lease are $160,000 and are due on July 1 of each year. The first payment was made on July 1, 2015. The rate of interest contemplated by Pye and Polan is 9%. The cash selling price of the equipment is $1,120,000 and the cost of the equipment on Pye’s accounting records was $992,000. Assuming that the lease is appropriately recorded as a sale for accounting purposes by Pye, what is the amount of profit on the sale and the interest revenue that Pye would record for the year ended December 31, 2015?

Metro Company, a dealer in machinery and equipment, leased equipment to Sands, Inc., on
July 1, 2015. The lease is appropriately accounted for as a sales-type lease by Metro and as a capital lease by Sands. The lease is for a 10-year period (the useful life of the asset) expiring June 30, 2025. The first of 10 equal annual payments of $552,000 was made on July 1, 2015. Metro had purchased the equipment for $3,500,000 on January 1, 2015, and established a list selling price of $4,800,000 on the equipment. Assume that the present value at July 1, 2015, of the rent payments over the lease term discounted at 8% (the appropriate interest rate) was $4,000,000.

Assuming that Sands, Inc. uses straight-line depreciation, what is the amount of deprecia-tion and interest expense that Sands should record for the year ended December 31, 2015?

Metro Company, a dealer in machinery and equipment, leased equipment to Sands, Inc., on
July 1, 2015. The lease is appropriately accounted for as a sales-type lease by Metro and as a capital lease by Sands. The lease is for a 10-year period (the useful life of the asset) expiring June 30, 2025. The first of 10 equal annual payments of $552,000 was made on July 1, 2015. Metro had purchased the equipment for $3,500,000 on January 1, 2015, and established a list selling price of $4,800,000 on the equipment. Assume that the present value at July 1, 2015, of the rent payments over the lease term discounted at 8% (the appropriate interest rate) was $4,000,000.

What is the amount of profit on the sale and the amount of interest revenue that Metro should record for the year ended December 31, 2015?

Roman Company leased equipment from Koenig Company on July 1, 2015, for an eight-year period expiring June 30, 2023. Equal annual payments under the lease are $600,000 and are due on July 1 of each year. The first payment was made on July 1, 2015. The rate of interest contemplated by Roman and Koenig is 8%. The cash selling price of the equipment is $3,723,750 and the cost of the equipment on Koenig’s accounting records was $3,300,000. Assuming that the lease is appropriately recorded as a sale for accounting purposes by Koenig, what is the amount of profit on the sale and the interest income that Koenig would record for the year ended December 31, 2015?

Gage Co. purchases land and constructs a service station and car wash for a total of $360,000. At January 2, 2014, when construction is completed, the facility and land on which it was constructed are sold to a major oil company for $400,000 and immediately leased from the oil company by Gage. Fair value of the land at time of the sale was $40,000. The lease is a 10-year, noncancelable lease. Gage uses straight-line depreciation for its other various business holdings. The economic life of the facility is 15 years with zero salvage value. Title to the facility and land will pass to Gage at termination of the lease. A partial amortization schedule for this lease is as follows:
Payments Interest Amortization Balance
Jan. 2, 2014 $400,000.00
Dec. 31, 2014 $65,098.13 $40,000.00 $25,098.13 374,901.87
Dec. 31, 2015 65,098.13 37,490.19 27,607.94 347,293.93
Dec. 31, 2016 65,098.13 34,729.39 30,368.74 316,925.19

From the viewpoint of the lessor, what type of lease is involved above?

Gage Co. purchases land and constructs a service station and car wash for a total of $360,000. At January 2, 2014, when construction is completed, the facility and land on which it was constructed are sold to a major oil company for $400,000 and immediately leased from the oil company by Gage. Fair value of the land at time of the sale was $40,000. The lease is a 10-year, noncancelable lease. Gage uses straight-line depreciation for its other various business holdings. The economic life of the facility is 15 years with zero salvage value. Title to the facility and land will pass to Gage at termination of the lease. A partial amortization schedule for this lease is as follows:
Payments Interest Amortization Balance
Jan. 2, 2014 $400,000.00
Dec. 31, 2014 $65,098.13 $40,000.00 $25,098.13 374,901.87
Dec. 31, 2015 65,098.13 37,490.19 27,607.94 347,293.93
Dec. 31, 2016 65,098.13 34,729.39 30,368.74 316,925.19

What is the discount rate implicit in the amortization schedule presented above?

Gage Co. purchases land and constructs a service station and car wash for a total of $360,000. At January 2, 2014, when construction is completed, the facility and land on which it was constructed are sold to a major oil company for $400,000 and immediately leased from the oil company by Gage. Fair value of the land at time of the sale was $40,000. The lease is a 10-year, noncancelable lease. Gage uses straight-line depreciation for its other various business holdings. The economic life of the facility is 15 years with zero salvage value. Title to the facility and land will pass to Gage at termination of the lease. A partial amortization schedule for this lease is as follows:
Payments Interest Amortization Balance
Jan. 2, 2014 $400,000.00
Dec. 31, 2014 $65,098.13 $40,000.00 $25,098.13 374,901.87
Dec. 31, 2015 65,098.13 37,490.19 27,607.94 347,293.93
Dec. 31, 2016 65,098.13 34,729.39 30,368.74 316,925.19

The total lease-related expenses recognized by the lessee during 2015 is which of the following? (Rounded to the nearest dollar.)

Gage Co. purchases land and constructs a service station and car wash for a total of $360,000. At January 2, 2014, when construction is completed, the facility and land on which it was constructed are sold to a major oil company for $400,000 and immediately leased from the oil company by Gage. Fair value of the land at time of the sale was $40,000. The lease is a 10-year, noncancelable lease. Gage uses straight-line depreciation for its other various business holdings. The economic life of the facility is 15 years with zero salvage value. Title to the facility and land will pass to Gage at termination of the lease. A partial amortization schedule for this lease is as follows:
Payments Interest Amortization Balance
Jan. 2, 2014 $400,000.00
Dec. 31, 2014 $65,098.13 $40,000.00 $25,098.13 374,901.87
Dec. 31, 2015 65,098.13 37,490.19 27,607.94 347,293.93
Dec. 31, 2016 65,098.13 34,729.39 30,368.74 316,925.19

What is the amount of the lessee’s liability to the lessor after the December 31, 2016 payment? (Rounded to the nearest dollar.)

Gage Co. purchases land and constructs a service station and car wash for a total of $360,000. At January 2, 2014, when construction is completed, the facility and land on which it was constructed are sold to a major oil company for $400,000 and immediately leased from the oil company by Gage. Fair value of the land at time of the sale was $40,000. The lease is a 10-year, noncancelable lease. Gage uses straight-line depreciation for its other various business holdings. The economic life of the facility is 15 years with zero salvage value. Title to the facility and land will pass to Gage at termination of the lease. A partial amortization schedule for this lease is as follows:
Payments Interest Amortization Balance
Jan. 2, 2014 $400,000.00
Dec. 31, 2014 $65,098.13 $40,000.00 $25,098.13 374,901.87
Dec. 31, 2015 65,098.13 37,490.19 27,607.94 347,293.93
Dec. 31, 2016 65,098.13 34,729.39 30,368.74 316,925.19

The total lease-related income recognized by the lessee during 2015 is which of the following?

On June 30, 2015, Falk Co. sold equipment to an unaffiliated company for $1,000,000. The equipment had a book value of $900,000 and a remaining useful life of 10 years. That same day, Falk leased back the equipment at $10,000 per month for 5 years with no option to renew the lease or repurchase the equipment. Falk’s rent expense for this equipment for the year ended December 31, 2015, should be