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Im a little confused about the Lease Bonuses example for Operating Leases in F5 Becker material:
Example on page 9:
Company A purchases a machine on January 1, Year 1 for $1,500,000 with expected life of 10 years and no residual value (straight line depr). On January 1, year 1, Company B leases the machine from Company A for 3 years, at monthly rate of $32,000 and paid a Lease Bonus of $75,000. What is the Year 1 income related to the lease for the lessor.
Monthly rentals (32,000×12) 384,000
plus: Bonus amortization (75,000/3) 25,000
less: Depreciation 150,000
income from Leased asset Yr 1 259,000
What i understood was that a Lease Bonus is like a prepaid expense for the Lessee, and an Unearned revenue for the Lessor.
In the example, it asks what the income related to the lease should be, and it adds 25,000 of the Lease Bonus of 75,000 to the related income for the first year.
Isnt the amount of $75,000 just an advance for the agreed on monthly rental of $32,000, and is only a cash prepayment of the rent. It isnt being given as additional consideration to the agreed amount, therefore it shouldnt change the amount of income recognized on a monthly or yearly basis.
Can someone please help me clarify this out
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