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Question - Metro Company (lessor) leased equipment to Sands, Inc. (lessee) on January 1, Year 1. The lease is appropriately accounted for as a sales-type lease by Metro and as a finance lease by Sands. The lease term is 10 years which is also the useful life of the asset. The first of 10 equal annual payments of $828,000 was made on January 1, Year 1.
Metro's cost to manufacture the equipment was $4,350,000.
Assume that the present value of the rent payments over the lease term discounted at Metro's implicit rate of interest of 10% was $5,100,000.
What is the amount of net profit (i.e., sales minus cost of sales) that Metro should record for the year ended December 31, Year 1?
A. None of the above. Insufficient information exists to determine the appropriate answer.
B. $750,000
C. $0
D. $1,200,000
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