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On January 2,2025, Hernandez, Inc. signed a ten-year noncancelable lease for a heavy ...

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Accounting

On January 2,2025, Hernandez, Inc. signed a ten-year noncancelable lease for a heavy
duty drill press. The lease stipulated annual payments of $300,000 starting at the beginning of the first year, with title passing to Hernandez at the expiration of the lease. Hernandez treated this transaction as a finance lease. The drill press has an estimated useful life of 15 years, with no salvage value. Hernandez uses straight-line amortization for all of its plant assets. Aggregate lease payments were determined to have a present value of $2,027,706, based on an implicit interest rate of 10%.
In its 2025 income statement, what amount of amortization expense should Hernandez report from this lease transaction?
A) $180,000
B) $300,000
C) $125,000
D) $135,180
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