On January 1, 2021, Ale Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Ale to make annual payments of $180,000 at the beginning of each year for five years with title passing to Ale at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Ale uses the straight-line method of depreciation for all of its fixed assets. Ale accordingly accounts for this lease transaction as a finance lease. The lease payments were determined to have a present value of $750,578 at an effective interest rate of 10%.

With respect to this lease, for 2022 Ale should record

a. interest expense of $57,058.

b. interest expense of $75,058.

c. interest expense of $44,764.

d. interest expense of $62,764

Ralph Inc. leased equipment from Ferry Company under a four-year lease requiring equal annual payments of $344,152, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4 year useful life and no salvage value. Ralph, Inc.s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Ralph, Inc.) is 8%. Assuming that this lease is properly classified as a finance lease, what is the amount of Lease Liability reduction recorded in first year after the lease inception.

PV Annuity Due PV Ordinary Annuity

8%, 4 periods 3.57710 3.31213

10%, 4 periods 3.48685 3.16986

a. $344,152

b. $245,666

c. $252,960

d. $273,199

Ball Company leased machinery to Denver Company on July 1, 2021, for a ten-year period expiring June 30, 2031. Equal annual payments under the lease are $250,000 and are due on July 1 of each year. The first payment was made on July 1, 2021. The rate of interest used by Harter and Stine is 9%. The lease receivable before the first payment is $1,750,000 and the cost of the machinery on Balls accounting records was $1,550,000. Assuming that the lease is appropriately recorded as a sale for accounting purposes by Ball, what amount of interest revenue would Ball record for the year ended December 31, 2021?

a. $67,500

b. $135,000

c. $157,500

d. $0