50.1K

Verified Solution

Link Copied!

31, On January 1, 2021, Ale Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Ale to make annual payments of $180,000 at the beginning of each year for five years with title passing to Ale at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Ale uses the straight-line method of depreciation for all of its fixed assets. Ale accordingly accounts for this lease transaction as a finance lease. The lease payments were determined to have a present value of $750,578 at an effective interest rate of 10%. With respect to this lease, for 2022 Ale should record a interest expense of $57,058. b. interest expense of $75,058. C. interest expense of $44,764. d. interest expense of $62,764 32. Ralph Inc. leased equipment from Ferry Company under a four-year lease requiring equal annual payments of $344,152, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4 year useful life and no salvage value. Ralph, Inc.'s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Ralph, Inc.) is 8%. Assuming that this lease is properly classified as a finance lease, what is the amount of Lease Liability reduction recorded in first year after the lease inception. 8%, 4 periods 10%, 4 periods PV Annuity Due 3.57710 3.48685 PV Ordinary Annuity 3.31213 3.16986 a. $344,152 b. $245,666 C. $252,960 d. $273,199

Answer & Explanation Solved by verified expert

See Answer