Answered: nuary 1, 2021 with a rate of 10%

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Nexen Corporation leased equipment for its 8-year useful life, agreeing to pay $90,000 at the beginning of the lease term on January 1, 2021, also paying $90,000 annually each January 1 for the next 7 years. Present of the 8 lease payments on January 1, 2021 with a rate of 10% are $530,000. How much should Nexen report as total depreciation and interest expense on the 2021 income and expense statement?

A) 110,250

B)105,650

C) 104,250

D)114,650

Expert Solution

Step 1

Interest expense is expense paid by the lessee to the lessor for the right to use the asset. It is calculated on the present value of lease payments less payments made during the year

Depreciation expense is calculated on the lease payments and the equipment lease term.

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