Lessor/Capital Lease problem from Mock into, collection, agreement, following

cross-ied

On 1 January 2008 a company enters into a lease agreement to lease a piece of
machinery as the lessor with the following terms:
Annual lease payment due 31 December $75,000
Lease term 6 years
Estimated useful life of the machine 7 years
Estimated salvage value of the machine $0
Carrying value (cost) of leased asset $300,000
Implied interest rate on lease 7%
The firm is reasonably assured of the collection of the lease payments.
The total affect on 2008 pretax income for the lessor from this lease is closest to:
A. $32,143.
B. $75,000.
C. $82,519.
I understand the following components of the income statement.
1) Int expense=.07*357K (pv of lease incomes)=25K
2) Profit booked based on the book value = 57K
But what about the Depr expense component? 51K (357K/7) How do you reconcile for that?
Am I missing something major? pls help!

BelalM

Thanks folks

Rasec

Because the PV of the payments is the carrying value its a sales type lease.
Depreciation is on the buyers books.
At inception book gross profit = (357k300k) and interest (.07*357 lease receivable).
You are all set.

badonkus

Do you still need to depreciate it if the asset ain’t your’s anymore? I’m not sure you need to. So (1) + (2) is all you need, imho.