On May 1, 2017, Charles Corp.leased equipment to Darwin Inc.for one year under an operating lease.Instead of leasing it, Darwin could have bought the equipment from Charles for $800,000 cash.At this time, Charles's accounting records showed a book value for the equipment of $700,000.Depreciation on the equipment in 2017 was $90,000.During 2017, Darwin paid $22,500 per month rent to Charles for the 8-month period, and Charles incurred maintenance and other related costs under the terms of the lease of $16,000.
The net income before income taxes reported by Charles from this lease for the year ended December 31, 2017, should be
A)$74,000.
B)$90,000.
C)$164,000.
D)$180,000.

Question

Quizplus · Accepted Answer

The net income before income taxes reported by Charles from this lease for the year ended December 31, 2017, is $74,000. This is calculated as follows:Rent revenue: $22,500 x 8 months = $180,000Less: Depreciation expense: $90,000Less: Maintenance and other related costs: $16,000Net income before income taxes: $74,000