On January 1, 2011, Walter Scott Co. leased machinery under a 6-year lease. The

Question

On January 1, 2011, Walter Scott Co. leased machinery under a 6-year lease. The machinery has a 9-year economic life. The present value of the monthly lease payments is determined to be 85% of the machinery's fair value. The lease contract includes neither a transfer of title to Scott nor a bargain purchase option. What amount should Scott report in its 2011 income statement?


a. Depreciation expense equal to one-ninth of the equipment's fair value.

b. Depreciation expense equal to one-sixth of the machinery‘s fair value.

c. Rent expense equal to the 2011 lease payments.

d. Rent expense equal to the 2011 lease payments minus interest

Explanation / Answer

On January 1, 2011, Walter Scott Co. leased machinery under a 6-year lease. The machinery has a 9-year economic life. The present value of the monthly lease payments is determined to be 85% of the machinery's fair value. The lease contract includes neither a transfer of title to Scott nor a bargain purchase option. What amount should Scott report in its 2011 income statement?


answer ; c. Rent expense equal to the 2011 lease payments.

lease DOENOT MEET ANY CRITERIA NECESSARY FOR CAPITAL LEASES

SO LEASES DOES NOT DEPRECIATE THE ASSESTS AND REPORTS LEASE PAYMENT AS RENT EXPENSE ON ITS INCOME STATEMENT

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