Reference no: EM131748998

Question: On January 1, 2017, a machine was purchased for $825,600 by Sarasota Co. The machine is expected to have an 8-year life with no salvage value. It is to be depreciated on a straight-line basis. The machine was leased to Ivanhoe Inc. on January 1, 2017, at an annual rental of $205,200. Other relevant information is as follows.

1. The lease term is for 3 years.

2. Sarasota Co. incurred maintenance and other executory costs of $25,600 in 2017 related to this lease.

3. The machine could have been sold by Sarasota Co. for $865,600 instead of leasing it.

4. Ivanhoe is required to pay a rent security deposit of $34,200 and to prepay the last month's rent of $17,100.

(a) How much should Sarasota Co. report as income before income tax on this lease for 2017?

Income before income tax $

(b) What amount should Ivanhoe Inc. report for rent expense for 2017 on this lease?

Rent expense $