Effect of Lease Agreement on LTT Corporation's Earnings

Final answer:

The lease will decrease LTT's earnings for the first year and increase their assets and liabilities on the balance sheet.

Impact on Earnings

The effect of the lease on LTT's earnings for the first year would be a reduction in earnings due to the expense of the rent payments. Each quarter, LTT would have to pay $42,000 in rent, which would be recorded as an expense on their income statement. This expense would decrease their overall earnings for the year.

Changes in Balance Sheet

The lease arrangement would also affect the balance sheet of LTT Corporation. The lease payment would be recorded as a liability, representing the future obligation to make rent payments. At the same time, an asset would be recognized on the balance sheet for the right to use the office space.

Overall, the lease would have a negative impact on LTT's earnings for the first year due to the rental expense, but it would also increase their assets and liabilities on the balance sheet.