Question - At the beginning of its fiscal year, Café Med leased restaurant space from Crescent Corporation under an eight-year lease agreement. The contract calls for annual lease payments of $33,000 each at the end of each year. The building was acquired recently by Crescent at a cost of $380,000 (its fair value) and was expected to have a useful life of 25 years with no residual value. The company seeks a 9% return on its lease investments.
What will be the effect of the lease on Café Med's earnings for the first year (ignore taxes)?