On May 1, 2020, Charles Corp

question 97

Multiple Choice

On May 1, 2020, Charles Corp. leased equipment to Darwin Inc. for one year under an operating lease. Instead of leasing it, Darwin could have bought the equipment from Charles for $ 800,000 cash. At this time, Charles's accounting records showed a book value for the equipment of $ 700,000. Depreciation on the equipment in 2020 was $ 90,000. During 2020, Darwin paid $ 22,500 per month rent to Charles for the 8-month period, and Charles incurred maintenance and other related costs under the terms of the lease of $ 16,000. The pre-tax expense reported by Darwin from this lease for the year ended December 31, 2020, should be

• A) $ 74,000.
• B) $ 90,000.
• C) $ 164,000.
• D) $ 180,000.

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Definitions:

Retained Earnings

Profits that a company keeps or reinvests after dividends are paid out to shareholders, often used for research, development, debt reduction, or other investments.

Trade Secrets

Trade secrets are confidential pieces of information that provide a business with a competitive edge, such as formulas, practices, designs, instruments, or patterns that are not generally known or reasonably ascertainable.

Catgut

A type of cord previously made from the natural fibers in the intestines of sheep or other animals, commonly used in making strings for musical instruments or surgical sutures.

Derived Demand

The demand for a factor of production or intermediate good that results from the demand for another intermediate or final good.