Question
On January 2, 2020, Cruise Ltd. signed a ten-year non-cancellable lease for a heavy-duty drill press. The lease required annual payments of $52,500, starting December
On January 2, 2020, Cruise Ltd. signed a ten-year non-cancellable lease for a heavy-duty drill press. The lease required annual payments of $52,500, starting December 31, 2020, with title passing to Cruise at the end of the lease. Cruise is accounting for this lease as a capital (finance) lease. The drill press has an estimated useful life of 20 years, with no residual value. Cruise uses straight-line depreciation for all its plant assets. The lease payments were determined to have a present value of $352,279, based on an implicit interest rate of 8%. On their 2020 income statement, how much depreciation expense should Cruise report in connection with this lease?
$35,228
$21,000
$10,500
$17,614
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