Question
Stovall Industries leased equipment to Arnett Manufacturing on July 1, 2019, for a ten-year period expiring June 30, 2029. The terms of the lease agreement
Stovall Industries leased equipment to Arnett Manufacturing on July 1, 2019, for a ten-year period expiring June 30, 2029. The terms of the lease agreement require equal annual payments of $50,000 on July 1 of each year, starting in 2019. The effective interest rate for the lease is 9%. The current fair value of the equipment is $350,000 at the beginning of the new lease, but the cost of the equipment on Stovalls accounting records was $310,000. If Stovall records the lease as a sale for accounting purposes, what amount of profit on the sale and interest revenue would Stovall record for the year ended December 31, 2019?
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A :
$0 and $0.
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B :
$40,000 and $31,500.
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C :
$40,000 and $13,500.
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D :
$40,000 and $27,000.
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