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How much income should Hiller recognize

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Question - Hiller Company manufactures equipment which is sold or leased. On December 31, year 1, Hiller leased equipment to Drake Company for a 5-year period expiring December 31, year 6, at which date ownership of the leased asset is transferred to Drake. Equal payments under the lease are $20,000 and are due on December 31 of each year. The first payment was made on December 31, year 1. Collectibility of the remaining lease payments is reasonably assured. The normal sales price of the equipment is $77,000 and Hiller's cost is $60,000. For the year ended December 31, year 1, how much income should Hiller recognize from the lease transactions?

a. $20,000

b. $23,000

c. $0

d. $17,000

Reference no: EM132736958

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