Question
Company leased a machine from Lessors, Inc. on January 1, Year1. Company agreed to make 10 payments of $20,000 each at the end of each
Company leased a machine from Lessors, Inc. on January 1, Year1. Company agreed to make 10 payments of $20,000 each at the end of each lease year. (The payment for Year1was due and made on 12/31/Year1.)
- The interest rate implicit in the leasing agreement was 5%.
- Title does not transfer to Company, so the machine will be returned to Lessors Inc. on December 31, Year10.
- The equipment has no residual value, and has a 20-year estimated useful life.
- On 1/1/Year1, the fair value of the machine being leased is $300,000.
Company's partial lease amortization schedule for the first two years appears below:
Payment | Interest Amount | Principle Amount | Lease payable Balance | |
1/1/Yr1 | 154,435 | |||
12/31/Yr1 | 20,000 | 7,722 | 12,278 | 142,157 |
12/31/yr2 | 20,000 | ?? | ?? | ?? |
1.Is this a financing lease(F) or an operating lease(O) for Company? Answer with an F or O.
2.What amount will Company record as the right of use asset at the inception of the lease?
3.How much interest expense will Company record with regards to this lease inYear2? (Round to the nearest dollar.)
4. Based just on the information you have, how muchtotalexpense (not just interest expense) will Company record related to this lease over the 10 year term of the lease?
Enter JUST a number for answers 2,3, and 4 (no punctuation or text).
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