Solvent Inc. signs a 10-year lease for a building owned by Property Inc. that is...
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Solvent Inc. signs a 10-year lease for a building owned by Property Inc. that is appropriately classified as an operating lease by both the lessee and lessor. Lease payments are $135,000 per year. The building has an estimated useful life of 20 years with no salvage value. Assume that the building has a fair value of $2,000,000 at the commencement of the lease, and Property incurred maintenance costs of $10,000. What amount would Property Inc. recognize in its income statement (ignoring taxes) for the year ended December 31, 2020? Assume that Property Inc. is using the straight-line method to depreciate buildings.
| a. | Net income before taxes of $30,000
| |
| b. | Net loss before taxes of $25,000
| |
| c. | Net income before taxes $25,000
| |
| d. | None of the above
|
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