On January 1, 2019, Free Corporation signed a ten-year noncancelable lease for certain machinery. The terms of the lease called for Free to make annual payments of $220,000 at the end of each year for ten years with the title passing to Free at the end of this period. Free uses the straight-line method of depreciation for all of its fixed assets and the leased machinery has an estimated useful life of 15 years and no salvage value. Free accordingly accounted for this lease transaction as a finance lease. The lease payments were determined to have a present value of $1,342,016 at an effective interest rate of 8%. With respect to this capitalized lease, Dean should record for 2019
Select one:
a. interest expense of $89,761 and depreciation expense of $134,202.
b. lease expense of $220,000
c. interest expense of $107,361 and depreciation expense of $89,468.
d. interest expense of $107,361 and depreciation expense of $134,202.
e. interest expense of $89,761 and depreciation expense of $89,468.
Answers: 2
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On January 1, 2019, Free Corporation signed a ten-year noncancelable lease for certain machinery. Th...
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