On June 30, 2017, Sharma Corp.sold equipment for $300,000.The equipment had a book value of $500,000 and a remaining useful life of 10 years.The same day, Sharma leased back the equipment at $6,000 per month for 5 years with no option to renew the lease or repurchase the equipment.
Sharma's equipment rent expense for this equipment for the year ended December 31, 2017, should be

Question

Quizplus · Accepted Answer

The total rent expense for the year is 6,000 x 12 months = $72,000. However, since the sale-leaseback transaction took place on June 30th, 2017, Sharma only leased the equipment for 6 months of the year. Therefore, the equipment rent expense for the year ended December 31, 2017 would be 6 x $6,000 = $36,000.