Reference no: EM133117711
Question - Tris leased a facility from Divergent Company in January 1, 2017. Terms of the lease were as follows:
Annual rental 240,000
Annual real property tax assumed by Tris 24,000
Annual insurance premium assumed by Tris 60,000
Term of the lease 12 years
Part of the lease agreement for Tris is to improve the facility. The improvement was completed on January 1, 2019. Details of the improvement were as follows:
Cost of leasehold improvements 3,000,000
Estimated useful life of improvements 15 years
1. The rent income to be reported by Divergent in 2017
a. 240,000
b. 264,000
c. 300,000
d. 324,000
2. The rent income to be reported by Divergent in 2018
a. 240,000
b. 264,000
c. 300,000
d. 324,000
3. The income from leasehold improvements to be reported by Divergent in 2019 assuming the company opted to report income from improvement in one lump sum amount.
a. 3,000,000
b. 200,000
c. 1,000,000
d. 100,000
4. The income from leasehold improvements to be reported by Divergent in 2019 assuming the company opted to report income from improvement using the spread out method.
a. 3,000,000
b. 200,000
c. 1,000,000
d. 100,000
5. How much loss will be reported by Divergent if the property was destroyed by fire after the 8th year, using the outright method and spread-out method, respectively?
a. 3,000,000; 800,000
b. 800,000; 3,000,000
c. 3,000,000; 3,000,000
d. 800,000; 800,000
6. How much additional income will be reported by Divergent if the lease contract was terminated due to the fault of the lessee at the end of the 8th year, using the outright method and spread-out method, respectively? (FMV of the leasehold improvement at the time of termination was 1,000,000)
a. 1,000,000; 0
b. 0; 200,000
c. 1,000,000; 200,000
d. 0; 0
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