Question

Lessee leased a machine from Lessor under a 10-year, noncancelable lease. The transaction was properly classified...

Lessee leased a machine from Lessor under a 10-year, noncancelable lease. The transaction was properly classified as a finance lease, and a right-of-use asset and a lease liability of $100,000 were recorded. The $14,900 annual payments made at the end of each lease period were discounted at 8% implicit interest to derive the initial $100,000 amounts. Lessee should record the following interest expense at the end of Years 1 and 2: Please show solution

  • Year 1
    		Year 2
  • A.

    $8,000

    $8,000
  • B.

    $8,000

    $7,448
  • C.

    $8,000

    $7,360
  • D.

    $6,900

    $7,452
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