A is corrent. The lease shall be accounted for as an operating lease because none of the four requirements applicable to both lessees and lessors is met. Even if one or more was met, the lease would still be classified as an operating lease as the payments are not reasonably predictable (ASC Topic 840). The calculation for lease income for year 1 would be as follows:
| Rental income | $ 240,000 |
| Less: year 1 depreciation | (200,000) |
| Maintenance costs | (18,000) |
| Income from lease for year 1 | $ 22,000 |
B is incorrect. The lease shall be accounted for as an operating lease because none of the four requirements applicable to both lessees and lessors is met. Even if one or more was met, the lease would still be classified as an operating lease as the payments are not reasonably predictable (ASC Topic 840). The calculation for lease income for year 1 would be as follows:
| Rental income | $ 240,000 |
| Less: year 1 depreciation | (200,000) |
| Maintenance costs | (18,000) |
| Income from lease for year 1 | $ 22,000 |
C is incorrect. The lease shall be accounted for as an operating lease because none of the four requirements applicable to both lessees and lessors is met. Even if one or more was met, the lease would still be classified as an operating lease as the payments are not reasonably predictable (ASC Topic 840). The calculation for lease income for year 1 would be as follows:
| Rental income | $ 240,000 |
| Less: year 1 depreciation | (200,000) |
| Maintenance costs | (18,000) |
| Income from lease for year 1 | $ 22,000 |
D is incorrect. The lease shall be accounted for as an operating lease because none of the four requirements applicable to both lessees and lessors is met. Even if one or more was met, the lease would still be classified as an operating lease as the payments are not reasonably predictable (ASC Topic 840). The calculation for lease income for year 1 would be as follows:
| Rental income | $ 240,000 |
| Less: year 1 depreciation | (200,000) |
| Maintenance costs | (18,000) |
| Income from lease for year 1 | $ 22,000 |
