Question
On January 1, 2018, Penn Corp. signed a ten-year noncancelable lease for certain machinery. The terms of the lease called for Penn to make annual
On January 1, 2018, Penn Corp. signed a ten-year noncancelable lease for certain machinery. The terms of the lease called for Penn to make annual payments of $100,000 at theendof each year for ten years. Title does not pass to Penn at the end of this period. The machinery has an estimated useful life of 15 years and no salvage value. Penn uses the straight-line method of depreciation for all of its fixed assets. Penn properly accounted for this lease transaction as a capital lease. The lease payments were determined to have a present value of $671,008 at an effective interest rate of 8%.
With respect to this capitalized lease, for 2018 Penn should record:
Select one:
a.Interest expense of $45,681 and depreciation expense of $67,101
b.Interest expense of $44,734 and depreciation expense of $38,068
c.Interest expense of $45,681 and depreciation expense of $44,734
d.Interest expense of $53,681 and depreciation expense of $44,734
e.Interest expense of $53,681 and depreciation expense of $67,101
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