Question

On January 1, 20X5, Wren Co. leased a building to Brill under an operating lease for 10 years at $50,000 per year, payable the first day of each lease year. Wren paid $15,000 to a real estate broker as a finder's fee. The building is depreciating $12,000 per year. For 20X5, Wren incurred insurance and property tax expenses totaling $9,000. Wren's net rental income for 20X5 should be:______.

a) $27,500.

b) 9,000.

c) $35,000.

d) $36,500.

Answer 1

$27,500

Step-by-step explanation:

The computation of net rental income is shown below:-

The broker's fee ($15,000) should be amortized equally based over the 10 years of the lease, or $1,500 a year

Operating lease per year + Building depreciation + Property tax expenses totaling + Time period

= $50,000 - $12,000 - $9,000 - $1,500

= $27,500

Therefore, for computing the operating lease per we year we simply applied the above formula.