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Metro Company, a dealer in machinery and equipment, leased equipment to Sands, Inc., on July...

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Accounting

Metro Company, a dealer in machinery and equipment, leased equipment to Sands, Inc., on July 1, 2015. The lease is appropriately accounted for as a sales-type lease by Metro and as a capital lease by Sands. The lease is for a 10-year period (the useful life of the asset) expiring June 30, 2025. The first of 10 equal annual payments of $552,000 was made on July 1, 2015. Metro had purchased the equipment for $3,500,000 on January 1, 2015, and established a list selling price of $4,800,000 on the equipment. Assume that the present value at July 1, 2015, of the rent payments over the lease term discounted at 8% (the appropriate interest rate) was $4,000,000.

19. Assuming that Sands, Inc. uses straight-line depreciation, what is the amount of deprecia-tion and interest expense that Sands should record for the year ended December 31, 2015?

a. $200,000 and $137,920

b. $200,000 and $160,000

c. $2,400,000 and $137,920

d. $2,400,000 and $160,000

20. What is the amount of profit on the sale and the amount of interest revenue that Metro should record for the year ended December 31, 2015?

a. $0 and $137,920

b. $500,000 and $137,920

c. $500,000 and $160,000

d. $800,000 and $320,000

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