Question
BlossomCo. leased equipment to Riggs Company on May 1, 2021. At that time the collectibility of the lease payments was not probable. The lease expires
BlossomCo. leased equipment to Riggs Company on May 1, 2021. At that time the collectibility of the lease payments wasnotprobable. The lease expires on May 1, 2022. Riggs could have bought the equipment fromBlossomfor $4950000instead of leasing it.Blossom's accounting records showed a book value for the equipment on May 1, 2021, of $4250000.Blossom's depreciation on the equipment in 2021 was $500000. During 2021, Riggs paid $948000in rentals toBlossomfor the8-month period.Blossomincurred maintenance and other related costs under the terms of the lease of $99000in 2021. After the lease with Riggs expires,Blossomwill 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, 2021, should be
$500000.
$948000.
$401000.
$901000.
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