Question

On January 2, 20X1, Cole Co. signed an eight-year noncancelable lease for a new machine, requiring $15,000 annual payments at the beginning of each year. The machine has a useful life of 12 years, with no salvage value. Title passes to Cole at the lease expiration date. Cole use straight-line depreciation for all of its plant assets. Aggregate lease payments have a present value on January 2, 20X1, of $108,000, based on an appropriate rate of interest. For 20X1, Cole should record amortization expense for the leased machine at:

Answer 1

Answer:

Cole should record amortization expense for the leased machine at $9,000.

Explanation:

Machine cost would be recorded in book at = present value of Aggregate lease payments

Machine cost would be recorded in book at = $108,000

Depreciation (amortization) expense for the leased machine in first year= (Machine cost - salvage value)/Useful life

Depreciation (amortization) expense for the leased machine in  first year= ($108,000 - 0)/12

Depreciation (amortization) expense for the leased machine in  first year= $ 9,000

Therefore, Cole should record amortization expense for the leased machine at $9,000.