Question

Additional part to this problem:

On January 1, 2020, Crane Corporation signed a five-year non-cancelable lease for equipment. The terms of the lease called for Crane to make annual payment of $200,000 at the beginning of each year for 5 years. The equipment will revert to the lessor at the end of the lease. The equipment has an estimated useful life of 6 years . Crane uses the straight line amortization method when allowed. This lease meets one of the tests and is a finance lease. Assume the lease payments were determined to have a present value of $833,974 at an effective interest rate of 10%. With respect to this capitalized lease, Crane should record the following at the end of 2020, the first year of the lease? a Lease Expense $166,795 b. Interest expense $83,397 and Amortization expense $119,139 c. Lease Expense $200,000 d. Interest expense $63,397 and Amortization expense $166,795 elease Expense $119,149

If it was determined that the lease was an operating lease Crane should record the following at the end of 2020, the first year of the lease.

a. interest expense $63,397 and ammortization expense of $166,795

b. lease expense 166,795

c. lease expesnse 119,149

d. interest expense 83,397 and amortization expense 119,139

e. lease expense 200,000

Answer 1

Answer:

D. Interest Expnses $63,397 and ammortization expenses of $166,795

Total PV Value    =$833974

Less: Paid begning of the year    =-$200,000

Net Value                                 =$633,397

Interest =$633,397*10% =63,397

and ammortization =$2,00,000-63397=$166,795/-

IF Lease is Operating

D. Lease Expenses $2,00,000/- Because All payment are treated as a expenses.