On January 1, Lessee Company leases equipment with a useful life of 5 years for a 6-year lease term. Payments of $88,000 are due at the beginning of each year. The incremental borrowing rate is 4%. The present value of the payments is $407,440. Which of the following is true?Interest expense at the end of the first year is $407,440 x .04Amortization expense at the end of the first year is $407,440 divided by 6.Lease expense at the end of the first year is $88,000.Interest expense at the end of the first year is $319,440 x .04

Present Value of LEase Payments = $407,440 Payments are due at the beginning = $88,000 Incremental…

Answered: On January 1, Lessee Company leases…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 10GI: Owens Company leased equipment for 4 years at 50,000 a year with an option to renew the lease for 6...

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On January 1, Lessee Company leases equipment with a useful life of 5 years for a 6-year lease term. Payments of $88,000 are due at the beginning of each year. The incremental borrowing rate is 4%. The present value of the payments is $407,440. Which of the following is true?

Interest expense at the end of the first year is $407,440 x .04
Amortization expense at the end of the first year is $407,440 divided by 6.
Lease expense at the end of the first year is $88,000.
Interest expense at the end of the first year is $319,440 x .04

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