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The following facts pertain to a noncancelable lease agreement between Franklin Financing Company and Jones Dairy Products, a lessee, for a milking system.

Inception date of lease is October 1, 2004.

Lease term is 8 years.

Economic life of leased equipment is 10 years.

Fair value of asset on inception date is $175,000.

Cost of equipment to Franklin is $160,000.

Unguaranteed residual value at end of lease term is $15,000.

Estimated salvage value at end of economic life is $ 10,000.

Franklin's implicit rate (unknown to Jones) is 9%.

Jones's incremental borrowing rate is 8%.

There are no important uncertainties surrounding costs yet to be incurred by Franklin. However, collectibility of the lease payments from Jones is not reasonably predictable or assured. Jones assumes responsibility for all executory costs, which amount to $9,500 per year. Executory costs are paid each October 1 beginning in 2004 and lease payments are to be paid each September 30 beginning September 30, 2005. The asset will revert to Franklin at the end of the lease term. The straight-line depreciation method is used for all equipment by both Franklin and Jones. Franklin's and Jones's accounting periods end on December 31 and September 30, respectively.

Pertaining solely to this lease, what is the amount of net income that Franklin will report on its income statement for the year ended December 31, 2004?
Pertaining solely to this lease, what is the amount of net loss that Jones will report on its income statement for the year ended September 30, 2005?

 

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