Question
On January1, Year1, Reagan Inc. signed a non-cancelable 7-year lease for some equipment with Silver Leasing Co. The 7 lease payments of $90,000 each are
On January1, Year1, Reagan Inc. signed a non-cancelable 7-year lease for some equipment with Silver Leasing Co. The 7 lease payments of $90,000 each are made by Reagan annually, at December 31. Title does not transfer to the lessee, so the equipment will be returned to the lessor on December 31, Year7. The equipment has no residual value, and has a 7-year estimated useful life.
Reagan's lease amortization schedule for the first two years appears below:
Payments | Interest | Amort. | Balance | |
540,185 | ||||
12/31/Yr1 | 90,000 | 21,607 | 68,393 | 471,792 |
12/31/yr2 | 90,000 | 18,872 | 71,128 | 400,664 |
1. What amount will Reagan record as the cost of the equipment under assets at the inception of the lease?
2. How much interest expense will Reagan record with regards to this lease in Year3? Hint: You need to compute this amount as Year3 calculations are not in the table above. (Round to the nearest dollar.)
3. Based just on the information you have, how much total expense (not just interest expense) will Reagan record related to this lease over the seven year term? Need to include depreciation expense
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