Hazard Inc

Hazard Inc. manufactures equipment that is sold or leased. On December 31, 2011, Hazard leased equipment to Robards for a five-year period expiring December 31, 2016, at which date ownership of the leased asset will be transferred to Robards. Equal $40,000 payments under the lease are due on December 31 of each year. The first payment was made on December 31, 2011. Collectibility of the remaining lease payments is reasonably assured, and Hazard has no material cost uncertainties. The normal sales price of the equipment is $154,000 and cost is $120,000. For the year ended December 31, 2011, how much income should Hazard recognize from the lease transaction?

A) $46,000
B) $40,000
C) $34,000
D) $28,000

Correct Answer:

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