Question
Rich Company leased equipment to Snead Company on July 1, 2003, for a one-year period expiring June 30, 2004, for $80,000 a month. On July
Rich Company leased equipment to Snead Company on July 1, 2003, for a one-year period expiring June 30, 2004, for $80,000 a month. On July 1, 2004, Rich leased this piece of equipment to Price Company for a three-year period expiring June 30, 2007, for $100,000 a month. The original cost of the equipment was $6,400,000. The equipment, which has been continually on lease since July 1, 1999, is being depreciated on a straight-line basis over an eight-year period with no salvage value. Assuming that both the lease to Snead and the lease to Price are appropriately recorded as operating leases for accounting purposes, what is the amount of income (expense) before income taxes that each would record as a result of the above facts for the year ended December 31, 2004?
Rich Snead Price
a. $280,000 $(480,000) $(600,000)
b. $280,000 $(480,000) $(1,000,000)
c. $1,080,000 $(80,000) $(200,000)
d. $1,080,000 $(880,000) $(600,000)
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