On January 1, 2018, Free Corporation signed a 10-year noncancelable lease for certain machinery. The terms of the lease...
On January 1, 2018, Free Corporation signed a 10-year noncancelable lease for certain machinery. The terms of the lease called for Free to make annual payments of $235000 at the end of each year for 10 years with the title passing to Carla Vista at the end of this period. The machinery has an estimated useful life of 15 years and no salvage value. Free uses the straight-line method of amortization for all of its fixed assets. Free accordingly accounted for this lease transaction as a finance lease. The lease payments were determined to have a present value of $1540000 at an effective interest rate of 8%. With respect to this capitalized lease, Free should record amortization expense of
Answer: for 2018.
Homework Answers
ANSWER:
Present value of lease transaction = $1540000, useful life = 15 years and interest rate = 8%
Interest expenses = $1540000 * 8%
= $123200
Interest expenses = $123200
Depreciation expenses = $1540000 / 15 yrs
= $102667
Depreciation expenses=$102667
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