On January 1, 2020, Warden Industries signed a ten-year noncancelable lease for machinery. Warden is required to make annual payments of $150,000 at the end of each year, and Warden will obtain the title to the machinery at the end of the lease. Therefore, Warden accounted for the lease as a finance lease. The lease payments were determined to have a present value of $1,006,512 at an effective interest rate of 8%. If Warden uses the straight-line method of amortization for fixed assets and the machinery has an estimated useful life of 15 years with no salvage value, which of the following should Warden record for 2020? A. Interest expense of $68,522 and amortization expense of $100,652. B. Interest expense of $80,521 and amortization expense of $67,101. C. Interest expense of $67,101 and amortization expense of $57,102. D. Lease expense of $150,000.
On January 1, 2020, Warden Industries signed a ten-year noncancelable lease for machinery. Warden is required to make annual payments of $150,000 at the end of each year, and Warden will obtain the title to the machinery at the end of the lease. Therefore, Warden accounted for the lease as a finance lease. The lease payments were determined to have a present value of $1,006,512 at an effective interest rate of 8%. If Warden uses the straight-line method of amortization for fixed assets and the machinery has an estimated useful life of 15 years with no salvage value, which of the following should Warden record for 2020? A. Interest expense of $68,522 and amortization expense of $100,652. B. Interest expense of $80,521 and amortization expense of $67,101. C. Interest expense of $67,101 and amortization expense of $57,102. D. Lease expense of $150,000.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On January 1, 2020, Warden Industries signed a ten-year noncancelable lease for machinery. Warden is required to make annual payments of $150,000 at the end of each year, and Warden will obtain the title to the machinery at the end of the lease. Therefore, Warden accounted for the lease as a finance lease. The lease payments were determined to have a present value of $1,006,512 at an effective interest rate of 8%. If Warden uses the straight-line method of amortization for fixed assets and the machinery has an estimated useful life of 15 years with no salvage value, which of the following should Warden record for 2020?
A. Interest expense of $68,522 and amortization expense of $100,652.
B. Interest expense of $80,521 and amortization expense of $67,101.
C. Interest expense of $67,101 and amortization expense of $57,102.
D. Lease expense of $150,000.
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