29

On June 30, 2018, Wildhorse Co. sold equipment to an unaffiliated company for $2450000. The equipment had a book value of $1305000 and a remaining useful life of 10 years. That same day, Wildhorse leased back the equipment at $12900 per month for 5 years with no option to renew the lease or repurchase the equipment. Wildhorse's rent expense for this equipment for the year ended December 31, 2018, should be

1. $103200.
2. $309600.
3. $77400.
4. $129000.

Question 30

Oriole, Inc. leased equipment from Tower Company under a 4-year lease requiring equal annual payments of $254152, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4 year useful life and no salvage value. Oriole, Inc.'s incremental borrowing rate is 11% and the rate implicit in the lease (which is known by Oriole, Inc.) is 9%. Assuming that this lease is properly classified as a capital lease, what is the amount of principal reduction recorded when the second lease payment is made in Year 2?

PV Annuity Due PV Ordinary Annuity

9%, 4 periods 3.53129 3.23972

11%, 4 periods 3.44371 3.10245

1. $150505
2. $254152
3. $180048
4. $196252