On January 1, 2018, Ogleby Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Ogleby to make annual payments of $180,000 at the beginning of each year for five years with title passing to Ogleby at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Ogleby uses the straight-line method of depreciation for all of its fixed assets. Ogleby accordingly accounts for this lease transaction as a finance lease. The minimum lease payments were determined to have a present value of $750,578 at an effective interest rate of 10%.
With respect to this lease, for 2018 Ogleby should record
a. rent expense of $180,000.
b. interest expense of $57,058 and amortization expense of $150,116.
c. interest expense of $57,058 and amortization expense of $107,225.
d. interest expense of $90,000 and amortization expense of $181,956
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