If the lease payments of the $800,000 asset described in Question 57 were $210,000, first payment occurring at the beginning of the first year when the lease is signed, how would the lessee treat these payments in his financial lease analysis? His tax rate is 40%.
A)Lessee would treat each $210,000 payment as a cash outflow
B)Lessee would deduct these $210,000 payments from his CCA
C)Lessee would record net cash outflows for five years of $126,000 for leasing
D)Lessee would amortize the $800,000 over five years and show these inflows

Question

Quizplus · Accepted Answer

The lessee would record net cash outflows for five years of $126,000 for leasing. This is because the lease payments are $210,000 per year, and the lessee can deduct 40% of this amount, or $84,000, from his taxable income. This results in a net cash outflow of $126,000 per year.

If the Lease Payments of the $800,000 Asset Described in Question