On July 1, 2014, Kings Financial purchased a printing press for $4,600,000 for the purpose of leasing it. The press is expected to have a 15-year life, no residual value, and will be depreciated on the straight-line basis. The machine was leased to Coupons For Everyone, Inc. on September 1, 2014, for a 5-year period at an annual rental of $500,000. There is no provision for the renewal of the lease or purchase of the machine by the lessee at the expiration of the lease term. Kings Financial paid $50,000 of commissions associated with negotiating the lease in August 2014.

Instructions

(a) What expense should Coupons For Everyone, Inc. record as a result of the facts above for the year ended December 31, 2014? Show supporting computations in good form.

(b) What income or loss before income taxes should Kings Financial record as a result of the facts above for the year ended December 31, 2014? (Hint: Amortize commissions over the life of the lease.)