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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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On January 2, 2019, Lafayette Machine Shops Inc. signed a 10-year noncancelable lease for a heavy-duty drill press, stipulating annual payments of $15,000 starting at the end of the first year, with title passing to Lafayette at the expiration of the lease. Lafayette treated this transaction as a finance lease. The drill press has an estimated useful life of 15 years with no salvage value. Lafayette uses straight-line depreciation for all of its fixed assets. Aggregate lease payments were determined to have a present value of $92,170, based on implicit interest of 10%. For 2019, Lafayette should record:

Chapter 20, Problem 7MC, On January 2, 2019, Lafayette Machine Shops Inc. signed a 10-year noncancelable lease for a

To determine

Identify the correct options for interest expense and depreciation expense that Incorporation L should record.

Explanation

In this case, Incorporation L has a stipulating annual payment of $15,000 for a 10 year non-cancellable lease. The total present value of the lease payments were determined to be $92,170. The drill has an estimated useful life of 15 years with no salvage value. Therefore, the depreciation expense under straight-line method would be $6,415($92,170÷15 years)

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