Torrey Co Manufactures Equipment That Is Sold or Leased

Torrey Co. manufactures equipment that is sold or leased. On December 31, 2015, Torrey leased equipment to Dalton for a five-year period ending December 31, 2020, at which date ownership of the leased asset will be transferred to Dalton. Equal payments under the lease are $550,000 (including $50,000 executory costs) and are due on December 31 of each year. The first payment was made on December 31, 2015. Collectibility of the remaining lease payments is reasonably assured, and Torrey has no material cost uncertainties. The normal sales price of the equipment is $1,925,000, and cost is $1,500,000. For the year ended December 31, 2015, what amount of income should Torrey realize from the lease transaction?

A) $425,000
B) $550,000
C) $575,000
D) $825,000

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