4 At the beginning of its fiscal year, Lakeside Inc. leased office space to LTT

Question

4 At the beginning of its fiscal year, Lakeside Inc. leased office space to LTT Corporation under a twelfth-year operating lease agreement. The contract calls for quarterly rent payments of $36,000 each. The office building was acquired by Lakeside at a cost of $3.1 milon and was expected to have a useful life of 25 years with no residual value 7.14 points What will be the effect of the lease on LTT's earnings for the first year (ignore taxes)? (Enter your answer In whole dollars.) skipped educes its earnings by

Explanation / Answer

Because none of the five criteria's mentioned for a lease to be a fince lease is met, the lease is an operating lease. LTT will record Rent expense of $36,000 in each quarter, thus decreasing earnings by $144,000 each year.

LTT reduces its earnings by $144,000.

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