Question
On January 1, 2021, Blossom Corporation signed a 5-year noncancelable lease for equipment. The terms of the lease called for Blossom to make annual payments
On January 1, 2021, Blossom Corporation signed a 5-year noncancelable lease for equipment. The terms of the lease called for Blossom to make annual payments of $198,000 at the beginning of each year for 5 years beginning on January 1, 2021 with the title passing to Blossom at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Blossom uses the straight-line method of depreciation for all of its fixed assets. Blossom accordingly accounts for this lease transaction as a finance lease. The lease payments were determined to have a present value of $825,633 at an effective interest rate of 10%.
In 2021, Blossom should record interest expense of
Select one:
a. $115,437.
b. $135,237.
c. $82,563.
d. $62,763.
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