Question
Jones Co. leased equipment to Taylor Corp. on January 2, Year 1, for an eight-year period expiring December 31, Year 8. Equal payments under the
Jones Co. leased equipment to Taylor Corp. on January 2, Year 1, for an eight-year period expiring December 31, Year 8. Equal payments under the lease are $500,000 and are due on January 2 of each year. The first payment was made on January 2, Year 1. The list selling price of the equipment is $3,000,000 and its carrying cost on Howe's books is $2,100,000. The lease is appropriately accounted for as a sales-type (finance) lease. The present value of the lease payments at an imputed interest rate of 12% (Howe's incremental borrowing rate) is $2,500,000. What amount of profit on the sale should Howe report for the year ended December 31, Year 1
- A.
$0
- B.
$900,000
- C.
$400,000
- D.
$500,000
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