Question
On January 1, 2019 Frankstein Company (lessee) entered into a 5-year lease for a piece of equipment. Frankstein accounted for the acquisition as a finance
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On January 1, 2019 Frankstein Company (lessee) entered into a 5-year lease for a piece of equipment. Frankstein accounted for the acquisition as a finance lease for $120,000 (present value of lease payments). This lease includes a $5,000 bargain purchase option. At the end of the lease, Frankstein expects to exercise the bargain purchase option. Frankstein estimates that the equipment's fair value will be $10,000 at the end of its 8-year life. Frankstein regularly uses straight-line depreciation on similar equipment.
For the year ended December 31, 2019, what amount should Frankstein recognize as amortization of the asset recorded under the capital lease?
$23,000.
$13,750.
$15,000.
$24,000.
On January 1, 2019 Frankstein Company (lessee) entered into a 5-year lease for a piece of equipment. Frankstein accounted for the acquisition as a finance lease for $120,000 (present value of lease payments). This lease includes a $5,000 bargain purchase option. At the end of the lease, Frankstein expects to exercise the bargain purchase option. Frankstein estimates that the equipment's fair value will be $10,000 at the end of its 8-year life. Frankstein regularly uses straight-line depreciation on similar equipment.
For the year ended December 31, 2019, what amount should Frankstein recognize as amortization of the asset recorded under the capital lease?
| $23,000. | ||
| $13,750. | ||
| $15,000. | ||
| $24,000. |
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