Question
Brief Exercise 15-17 Lessor; effect on earnings; Type B lease At January 1, 2016, Caf Med leased restaurant equipment from Crescent Corporation under a Eight-year
Brief Exercise 15-17 Lessor; effect on earnings; Type B lease
At January 1, 2016, Caf Med leased restaurant equipment from Crescent Corporation under a Eight-year lease agreement. The lease agreement specifies annual payments of $35,000 beginning January 1, 2016, the beginning of the lease, and at each December 31 thereafter through 2023. The equipment was acquired recently by Crescent at a cost of $185,000 (its fair value) and was expected to have a useful life of 12 years with no residual value. The company seeks a 8% return on its lease investments. Assume that the risks and rewards of ownership are deemed not to have been transferred to the lessee. |
Respond to the question with the presumption that the guidance provided by the proposed Accounting Standards Update is being applied. |
What will be the effect of the lease on Crescents (lessors) earnings for the first year (ignore taxes)? |
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