On January 1, 2013, Ogleby Corporation signed a five-year noncancelable lease fo

Question

On January 1, 2013, Ogleby Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Ogleby to make annual payments of $120,000 at the end of each year for five years with title to pass 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 capital lease. The minimum lease payments were determined to have a present value of $454,896 at an effective interest rate of 10%. With respect to this capitalized lease, what is the interest expense and depreciation expense for both 2013 and 2014?

Explanation / Answer

interest expense of $22,745 and depreciation expense of 227,448

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