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On January 2, 2021, Ma, Inc. signed a 20-year noncancelable lease for a heavy duty drill press. The lease stipulated annual payments of $300,000 starting at the beginning of the first year, with title passing to Ma at the expiration of the lease. Ma treated this transaction as a finance lease. The drill press has an estimated useful life of 15 years, with no salvage value. Ma uses straight-line amortization for all of its plant assets. Aggregate lease payments were determined to have a present value of $2,809,476, based on implicit interest of 10%. In its 2021 income statement, what amount of amortization expense should Ma report from this lease transaction?

Respuesta :

letmeanswer

The amount of amortisation expense = $187298.4

Explanation:

  • On January 2, 2021, Ma, Inc., signed 20-years non-cancellable lease for a heavy duty drill press.
  • The lease stipulated annual payment of $300,000 starting at the beginning of the first year with title passing to Ma at the Expiration of the lease.
  • Ma treated this transaction as a capital lease.
  • Aggregate lease payments were determined to have a present value of $2,809,476  based on implicit interest of (10%).
  • Heavy duty drill press will be recovered in books of Ma at $2,809,476.
  • The drill press has an estimated useful life of 15 years, with no salvage value. Ma uses straight-line depreciation for all of its plant assets.
  • Depreciation of leased heavy duty drill press

                = $2,809,476 divide by 15 years

                = 2,809,476 divide by 15

                = 187298.4

The amount of amortisation expense = $187298.4

 

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