Lease Agreement Impact on Lakeside Inc.'s Earnings

How will the lease agreement affect Lakeside Inc.'s earnings in the first year?

What is the expected effect of the lease agreement between Lakeside Inc. and LTT Corporation on Lakeside Inc.'s earnings for the first year?

The lease agreement will increase Lakeside Inc.'s earnings by $152,000 in the first year.

At the beginning of its fiscal year, Lakeside Inc. leased office space to LTT Corporation under an eight-year operating lease agreement with quarterly rent payments of $38,000 each.

The office building's cost was $3.3 million and had an expected useful life of 30 years with no residual value.

Since it is an operating lease, Lakeside Inc. will recognize an additional revenue of $152,000 in the first year of the lease.

This revenue is evenly recognized over the lease term, resulting in an increase of $152,000 to Lakeside's earnings in the first year.

Quarterly rent payment = $38,000

Annual rent income = Quarterly rent payment * 4 (for four quarters in a year)

Annual rent income = $38,000 * 4 = $152,000

Therefore, the lease agreement will have a positive impact on Lakeside Inc.'s earnings in the first year.