Question
Carsplus Autoparts leased an industrial press from Snap-On Tools on January 1, 2021. The lease is for a 3-year period ending December 31, 2023. Annual
Carsplus Autoparts leased an industrial press from Snap-On Tools on January 1, 2021. The lease is for a 3-year period ending December 31, 2023. Annual payments are $42,000 beginning with the first payment on January 1, 2021, and each December 31 through 2022. NAPA has the option to purchase the industrial press on December 30, 2023 for $51,000, and exercise of the option seems reasonably certain. The machine's estimated useful life is 6 years with no salvage value. The implicit rate of return in the lease is 12%. Snap-On initially records the lease receivable at $149,283.
6. When NAPA Autoparts exercises the option and purchases the machine on December 31, 2023, what will be part of the entry?
A. | Credit cash for $51,000 |
B. | Debit machine for 51,000 |
C. | Credit lease payable for $45,536 |
D. | Credit interest expense for $5,464 |
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