Question
. On January 1, 2019, the company leased its administrative building under a contract wherein the company will obtain ownership of the building at the
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On January 1, 2019, the company leased its administrative building under a contract wherein the company will obtain ownership of the building at the end of the 20-year lease for a nominal amount. Management decided to expense the lease payment of $3,000,000 for 2019 (paid on January 1, 2019). The building would have been capitalized at $30 million if treated as a capital lease. The building has a remaining economic life of 25 years. The interest for 2019 would have amounted to $2.45 million.
The depreciation expense was $2 million lower than CCA in 2019, not including any impact from transaction 3. The tax rate enacted for 2020 and beyond was increased to 32%.
Appendix 1 - Draft Income Statement (Lee Ltd) Lee Ltd. Draft Income Statement For the year ended December 31, 2019 ($ 000) Sales Cost of goods sold Gross profit $ 100,000 50,000 $ 50,000 $ 6,000 2,000 28,000 $36,000 Expenses: Depreciation Pension Operating Net pretax income Income tax-estimate (30%) Net income $ 14,000 4,200 $ 9,800 Earnings Per Share ($ 9,800,000/2,000,000) = $ 4.90Step by Step Solution
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