Reference no: EM132071313

Question - On January 1, 2014, a machine was purchased for $767,900 by Young Co. The machine is expected to have an 7-year life with no salvage value. It is to be depreciated on a straight-line basis. The machine was leased to St. Leger Inc. on January 1, 2014, at an annual rental of $247,000. Other relevant information is as follows.

1. The lease term is for 3 years.

2. Young Co. incurred maintenance and other executory costs of $22,200 in 2014 related to this lease.

3. The machine could have been sold by Young Co. for $807,900 instead of leasing it.

4. St. Leger is required to pay a rent security deposit of $36,200 and to prepay the last month's rent of $17,200.

(a) How much should Young Co. report as income before income tax on this lease for 2014?

(b) What amount should St. Leger Inc. report for rent expense for 2014 on this lease?