E21-13 On January 1, 2014, a machine was purchased for $900,000 by Young Co.

E21-13  On January 1, 2014, a machine was purchased for $900,000 by Young Co. The machine is expected to have an 8-year life with no salvage value. It is to be depreciated on a straight-line basis. The machine was leased to St. Leger Inc. on January 1, 2014, at an annual rental of $210,000. Other relevant information is as follows.

1. The lease term is for 3 years.

2. Young Co. incurred maintenance and other executory costs of $25,000 in 2014 related to this lease.

3. The machine could have been sold by Young Co. for $940,000 instead of leasing it.

4. St. Leger is required to pay a rent security deposit of $35,000 and to prepay the last month’s rent of $17,500.

(a) How much should Young Co. report as income before income tax on this lease for 2014?

Income before income tax $

(b) What amount should St. Leger Inc. report for rent expense for 2014 on this lease?

Rent expense $