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Ulleksa [173]
2 years ago
10

On September 1, 2021, Custom Shirts Inc. "entered into a lease agreement appropriately classified as an operating lease". The le

ase term is three years. The annual payments by Custom Shirts are (a) $24,000 for year 1, (b) $28,000 for year 2, and (c) $32,000 for year 3. How much total lease expense will Custom Shirts recognize for 2021
Business
1 answer:
Savatey [412]2 years ago
8 0

Answer: Please refer to the explanation section

Explanation:

The question is not clear in terms of when is the financial year end, we only its 2021. We will assume the financial year started in January 2021 and ended December 2021

Operational Lease is an agreement where the lessor (owner of the asset)  allows the lessee (user of the asset) to only use the asset without the transfer of ownership. Ownership of the asset is not transferred to the lessee/ user of the asset. lease Payments/ Rental payments are considered as expenses and are recognize in the income statement.

Custom Shirts Inc entered into a Lease agreement on the 1st of September 2021. assuming the financial year ends on December 2021, the expense Recognized in the Income statement for the year ended December 2021 will

$ 24000 x 4 months/12 months =$ 8000

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now we must discount the future values using the 10% discount rate:

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3 years ago
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