Question
On January 1, 2012, Porter Corporation signed a five-year noncancelable lease for certain machinery. The terms of the lease called for: 1) Price to make
On January 1, 2012, Porter Corporation signed a five-year noncancelable lease for certain machinery. The terms of the lease called for:
1) | Price to make annual payments of $60,000 at the end of each year (starting on Dec. 31, 2012) for five years. Porter must return the equipment to the lessor end of this period. |
2) | The machinery has an estimated useful life of 6 years and no expected salvage value. |
3) | Porter uses the straight-line method of depreciation for all of its fixed assets. |
4) | Porters incremental borrowing rate is 8%. |
5) | The fair value of the asset at January 1, 2012 is $275,000. |
At January 1, 2012, Porter should record an asset and liability with respect to the equipment lease equal to
a. | $258,726 |
b. | $239,562 |
c. | $275,000 |
d. | $0 |
ANSwer is B but why ???
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