Question
Fieldman Company purchased a machine for leasing purposes on January 1, 2020, for $1,000,000. On March 1, 2020, Fieldman leased the machine to Dahlia Company
Fieldman Company purchased a machine for leasing purposes on January 1, 2020, for $1,000,000. On March 1, 2020, Fieldman leased the machine to Dahlia Company for $130,000 a year for a five-year period ending December 31, 2024, at which time, the machine reverts to Fieldman. Dahlia Company estimates the machines useful life to be 10 years. Dahlia does not guarantee a residual value of the machine at lease-end. Dahlia paid $130,000 to Fieldman on January 2, 2020, the first annual lease payment. Dahlia is not aware of the implicit rate of the lease, but Dahlias incremental borrowing rate is 5%.
What was the deduction to the Right-of-Use Asset account in 2020 for Dahlia Company?
A) $118,195
B) $106,951
C) $100,451
D) $130,000
Please show your work so I can see the process. Thank you
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