Calculate The income before income taxes derived by Oriole

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Question - Oriole Co. leased equipment to Riggs Company on May 1, 2018. At that time the collectability of the minimum lease payments was not reasonably predictable. The lease expires on May 1, 2019. Riggs could have bought the equipment from Oriole for $5450000 instead of leasing it. Oriole's accounting records showed a book value for the equipment on May 1, 2018, of $4500000. Oriole's depreciation on the equipment in 2018 was $750000. During 2018, Riggs paid $1284000 in rentals to Oriole for the 8-month period. Oriole incurred maintenance and other related costs under the terms of the lease of $115000 in 2018. After the lease with Riggs expires, Oriole will lease the equipment to another company for two years.

The income before income taxes derived by Oriole from this lease for the year ended December 31, 2018, should be

A. $419,000.00

B. $1,284,000.00

C. $750,000.00

D. $1,385,000.00

Reference no: EM132350134

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