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Hull Co.leased equipment to Riggs Company on May 1, 2011.The lease expires on May 1, 2012.Riggs could have bought the equipment from Hull for $3,200,000 instead of leasing it.Hull's accounting records showed a book value for the equipment on May 1, 2011, of $2,800,000.Hull's depreciation on the equipment in 2011 was $360,000.During 2011, Riggs paid $720,000 in rentals to Hull for the 8-month period.Hull incurred maintenance and other related costs under the terms of the lease of $64,000 in 2011.After the lease with Riggs expires, Hull will lease the equipment to another company for two years.
-The income before income taxes derived by Hull from this lease for the year ended December 31, 2011, should be

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Quizplus · Accepted Answer

The income before income taxes is calculated as rental income minus depreciation and maintenance costs: $720,000 - $360,000 - $64,000 = $296,000.

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