170n January I 2018. Penn Corporation signed a ten-year noncancelable lease for

Question

170n January I 2018. Penn Corporation signed a ten-year noncancelable lease for certain machinery The terms of the lease cialled for Pons to make annual payments of $100,000 at the beginning of each year ars with tile to pass to Penn at the end of this period The first payment was paid in Jan. 1.2018 ycars and no salvage value, Penn uses the straight-line The machinery has an estimated usetul ife of 15 method of depreciation for all of its tixed assets. Penn accordingly accounted for this lease transaction as interest f alease expenise of S100000 interest expense of $48.313 and amortization expense of $72-46 interest expense or sao 973 and amortization oxpense st s73 460 49975 and amortization expenseiot

Explanation / Answer

B)Carrying value after first payment : 724689 -100000 = 624689

Interest expense accrued for year 2018 : 624689 * .08 = $ 49975.12

Amortisation expense :[COst -salvage ]/lease term

              =[724689-0]/10

           = 724689 /10

             = 72468.9   [rounded to 72469]

correct option is " D"

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