ACCT 304 Chapter 16 QUIZ
E21 14 Operating Lease for Lessee and Lessor On February 20 2012 Hooke Inc purchased a machine
for $1,200,000 for the purpose of leasing it. The machine is expected to have a 10-year life, no residual value,
and will be depreciated on the straight-line basis. The machine was leased to Sage Company on March 1,
2012, for a 4-year period at a monthly rental of $15,600. There is no provision for the renewal of the lease or
purchase of the machine by the lessee at the expiration of the lease term. Hooke paid $30,000 of commissions
associated with negotiating the lease in February 2012:
Instructions
(a) What expense should Sage Company record as a result of the facts above for the year ended
December 31, 2012? Show supporting computations in good form.
(b) What income or loss before income taxes should Hooke record as a result of the facts above for the
year ended December 31, 2012? (Hint: Amortize commissions over the life of the lease.)
(AICPA adapted)
USA 
India