On January 2, 2016, Nori Mining Co. (lessee) entered into a 5-year lease for drilling equipment. Nori accounted for the acquisition as a capital lease for $240,000, which includes a $10,000 bargain purchase option. At the end of the lease, Nori expects to exercise the bargain purchase option. Nori estimates that the equipment’s fair value will be $20,000 at the end of its 8-year life. Nori regularly uses straight-line depreciation on similar equipment. For the year ended December 31, 2016, what amount should Nori recognize as depreciation expense on the leased asset? a. $27,500 b. $30,000 c. $48,000 d. $46,000
On January 2, 2016, Nori Mining Co. (lessee) entered into a 5-year lease for drilling equipment. Nori accounted for the acquisition as a capital lease for $240,000, which includes a $10,000 bargain purchase option. At the end of the lease, Nori expects to exercise the bargain purchase option. Nori estimates that the equipment’s fair value will be $20,000 at the end of its 8-year life. Nori regularly uses straight-line depreciation on similar equipment. For the year ended December 31, 2016, what amount should Nori recognize as depreciation expense on the leased asset? a. $27,500 b. $30,000 c. $48,000 d. $46,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On January 2, 2016, Nori Mining Co. (lessee) entered into a 5-year lease for drilling equipment. Nori
accounted for the acquisition as a capital lease for $240,000, which includes a $10,000 bargain purchase
option. At the end of the lease, Nori expects to exercise the bargain purchase option. Nori estimates that the
equipment’s fair value will be $20,000 at the end of its 8-year life. Nori regularly uses straight-line
on similar equipment. For the year ended December 31, 2016, what amount should Nori recognize as
depreciation expense on the leased asset?
a. $27,500
b. $30,000
c. $48,000
d. $46,000
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