On January 1, 2021, Sands Inc. signed a five-year lease for equipment with a fair market value of $917,000. Terms of the lease call for annual payments of $202,000 at the beginning of each year for five years beginning January 1, 2021. The equipment has an estimated useful life of 7 years and no salvage value. Both Sands and the lessor use straight-line depreciation, the lessor’s implicit and lessee’s incremental rates are both 10%, and the equipment will revert back to the lessor at the end of the lease. Required: For Sands Inc., determine how much should be recorded in 2021 for each of the following accounts. (Hint: Read the account titles carefully.) (a) Interest Expense: $______________ (b) Depreciation Expense: $______________
On January 1, 2021, Sands Inc. signed a five-year lease for equipment with a fair market value of
$917,000. Terms of the lease call for annual payments of $202,000 at the beginning of each year for five
years beginning January 1, 2021. The equipment has an estimated useful life of 7 years and no salvage
value. Both Sands and the lessor use straight-line
incremental rates are both 10%, and the equipment will revert back to the lessor at the end of the lease.
Required: For Sands Inc., determine how much should be recorded in 2021 for each of the following
accounts. (Hint: Read the account titles carefully.)
(a) Interest Expense: $______________
(b) Depreciation Expense: $______________
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