Reference no: EM132543730
Question 1: Metro Company, a dealer in machinery and equipment, leased equipment to Sands, Inc., on July 1, 2018. The lease is appropriately accounted for as a sales-type lease by Metro and as a finance lease by Sands. The lease is for a 10-year period (the useful life of the asset) expiring June 30, 2028. The first of 10 equal annual payments of €828,000 was made on July 1, 2018. Metro had purchased the equipment for €5,250,000 on January 1, 2018, and established a list selling price of €7,200,000 on the equipment. Assume that the present value at July 1, 2018, of the rent payments over the lease term discounted at 8% (the appropriate interest rate) was €6,000,000. Assuming that Sands, Inc. uses straight-line depreciation, what is the amount of deprecia-tion and interest expense that Sands should record for the year ended December 31, 2018?
Option a. €300,000 and €206,880
Option b. €300,000 and €240,000
Option c. €3,600,000 and €206,880
Option d. €3,600,000 and €160,000
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