Question

At January 1, 2018, Apricot leased restaurant equipment from Anderson Corporation under a six-year lease agreement in an operating lease. The lease agreement specifies annual payments of $20,000 beginning January 1, 2018, the beginning of the lease, and at each December 31 thereafter through 2022. The equipment was acquired recently by Anderson at a cost of $105,000 (its fair value) and was expected to have a useful life of eight years with no salvage value at the end of its life. (Because the lease term is only 6 years, the asset does have an expected residual value at the end of the lease term of $8,166, which is unguaranteed by Apricot.) Anderson seeks an 8% return on its lease investments. The amortization of the right-of-use asset in 2018 Apricot income statement would be:

a. $8,796
b. $10,540
c. $13.612
d. $14,742

Answer 1