Use the following information for questions.
Ball Ltd.purchased land and constructed a service station, at a total cost of $450,000.On January 2, 2016, when construction was completed, Ball sold the service station and land to a major oil company for $500,000, and immediately leased it back from the oil company.Fair value of the land at the time of the sale was $50,000.The lease is a 10-year, non-cancellable lease.Ball uses straight-line amortization for its other assets.The economic life of the station is 15 years with zero residual value.Title to the property will revert back to Ball at the end of the lease.A partial amortization schedule for this lease follows:
-The total lease-related income recognized by the lessee during 2017 is
A)$0.
B)$3,333.
C)$5,000.
D)$50,000.

Question

Use the following information for questions.
Ball Ltd.purchased land and constructed a service station, at a total cost of $450,000.On January 2, 2016, when construction was completed, Ball sold the service station and land to a major oil company for $500,000, and immediately leased it back from the oil company.Fair value of the land at the time of the sale was $50,000.The lease is a 10-year, non-cancellable lease.Ball uses straight-line amortization for its other assets.The economic life of the station is 15 years with zero residual value.Title to the property will revert back to Ball at the end of the lease.A partial amortization schedule for this lease follows: 
-The total lease-related income recognized by the lessee during 2017 is
A)$0. 
B)$3,333. 
C)$5,000. 
D)$50,000.

Quizplus · Accepted Answer

The lessee recognizes lease-related income over the lease term. In this case, the lease term is 5 years, and the lessee recognizes $1,000 of lease-related income each year. Therefore, the total lease-related income recognized by the lessee during 2017 is $3,333.

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