Question
On January 1, 2018, Sembra Corporation signed a five-year noncancelable lease for the equipment. The terms of the lease called for Sembra to make annual
On January 1, 2018, Sembra Corporation signed a five-year noncancelable lease for the equipment. The terms of the lease called for Sembra to make annual payments of $200,000 at the beginning of each year for five years beginning on January 1, 2018 with the title passing to Sembra at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Sembra uses the straight-line method of depreciation for all of its fixed assets. Sembra accordingly accounts for this lease transaction as a capital lease. The minimum lease payments were determined to have a present value of $833,972 at an effective interest rate of 10%.
- In 2018, Sembra should report interest expense of
a. $63,397
b. $116,604
c. $83,396
d. $136,604
2. In 2019, Sembra should record interest expense of
a. $43,397
b. $49,737
c. $69,737
d. $63,397
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