Question
On January 1, 2018, Penn Corporation 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 Corporation 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 the beginning of each year for ten years with title to pass to Penn at the end of this period. The first payment was paid on Jan. 1, 2018. 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 accordingly accounted for this lease transaction as a finance lease. The lease payments were determined to have a present value of $724,689 at an effective interest rate of 8%. With respect to this capitalized lease, Penn should record for 2018
a. lease expense of $100,000.
b. interest expense of $48,313 and amortization expense of $72,469.
c. interest expense of $49,975 and amortization expense of $48,313.
d. interest expense of $49,975 and amortization expense of $72,469.
The answer is C. Please show me how to get it?
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