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ZZZ C. signed a lease agreement to use an equipment for 5 years with the payment of $10,000 (present value $43,295). The current market rate is 5% and the market value of the equipment is $45,000 with the useful life of 10 years.

In the first year of the lease contract, ZZZ Co. recorded SGA $20,000, no interest expense and Net Income $30,000 and tax rate was 40% using the Operating lease method.

However, the CPA firm reported that ZZZ should have used the capital lease method. What would be the correct Net Income using the capital lease method?

 

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