Use the Following Information for Questions

question 53

Multiple Choice

Use the following information for questions
Hull Co.leased equipment to Riggs Company on May 1, 2016.The lease expires on May 1, 2017.Riggs could have bought the equipment from Hull for $3,200,000 instead of leasing it.Hull's accounting records showed a book value for the equipment on May 1, 2016, of $2,800,000.Hull's depreciation on the equipment in 2016 was $360,000.During 2016, Riggs paid $720,000 in rentals to Hull for the 8-month period.Hull incurred maintenance and other related costs under the terms of the lease of $64,000 in 2016.After the lease with Riggs expires, Hull will lease the equipment to another company for two years.
-The income before income taxes derived by Hull from this lease for the year ended December 31, 2016, should be

• A)$296,000.
• B)$360,000.
• C)$656,000.
• D)$720,000.

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Definitions:

Fixed Costs

Costs that do not change with the level of output or production in the short term, such as rent, salaries, and equipment leases.

Variable Costs

Costs that fluctuate with the level of output, including raw materials, labor, and energy consumption.

Assets Utilized

The resources and assets a company effectively uses in its operations to generate revenue.

Formulas

Prescribed sets of instructions or rules expressed in mathematical symbols and operations designed to solve problems or calculate values.