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Solutions 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 $150,000 per year. The building has an estimated useful life of 30 years with no salvage value. Assume that the building has a fair and carrying value of $2,000,000 at the commencement of the lease, what amount would Property Inc. recognize in its income statement (ignoring taxes) for the year ended December 31, 2020

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Parrain

Answer: $83,333

Explanation:

Amount Property will recognize in income statement:

= Lease revenue - Depreciation

Depreciation:

= (Fair value - salvage) / useful life

= (2,000,000 - 0) / 30

= $66,667

Amount recognized in income statement:

= 150,000 - 66,667

= $83,333

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