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Use the Following Information for Questions

question 9

Multiple Choice

Use the following information for questions.
Metro Company, a dealer in machinery and equipment, leased equipment to Sands, Inc., on
July 1, 2011.The lease is appropriately accounted for as a sale by Metro and as a purchase by Sands.The lease is for a 10-year period (the useful life of the asset) expiring June 30, 2021.The first of 10 equal annual payments of $621,000 was made on July 1, 2011.Metro had purchased the equipment for $3,900,000 on January 1, 2011, and established a list selling price of $5,400,000 on the equipment.Assume that the present value at July 1, 2011, of the rent payments over the lease term discounted at 8% (the appropriate interest rate) was $4,500,000.
-Roman Company leased equipment from Koenig Company on July 1, 2011, for an eight-year period expiring June 30, 2019.Equal annual payments under the lease are $300,000 and are due on July 1 of each year.The first payment was made on July 1, 2011.The rate of interest contemplated by Roman and Lennon is 8%.The cash selling price of the equipment is $1,861,875 and the cost of the equipment on Koenig's accounting records was $1,650,000.Assuming that the lease is appropriately recorded as a sale for accounting purposes by Koenig, what is the amount of profit on the sale and the interest income that Lennon would record for the year ended December 31, 2011?

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