Reference no: EM131641592

Question - On January 1, 2017, a machine was purchased for $906,400 by Carla Co. The machine is expected to have an 8-year life with no salvage value. It is to be depreciated on a straight-line basis. The machine was leased to Sarasota Inc. on January 1, 2017, at an annual rental of $190,800. Other relevant information is as follows.

1. The lease term is for 3 years.

2. Carla Co. incurred maintenance and other executory costs of $25,300 in 2017 related to this lease.

3. The machine could have been sold by Carla Co. for $946,400 instead of leasing it.

4. Sarasota is required to pay a rent security deposit of $31,800 and to prepay the last month's rent of $15,900.

(a) How much should Carla Co. report as income before income tax on this lease for 2017?

(b) What amount should Sarasota Inc. report for rent expense for 2017 on this lease?