Question

ABC Company leased equipment to Best Corporation under a lease agreement that qualifies as a finance lease. The cost of the asset is $120,000. The lease contains a bargain purchase option that is effective at the end of the fifth year. The expected economic life of the asset is 10 years. The lease term is five years. The asset is expected to have a residual value of $2,000 at the end of 10 years. Using the straight-line method, what would Best record as annual amortization

Answer 1

$11,800

Step-by-step explanation:

Calculation for what would Best record as annual amortization Using the straight-line method

First step is to calculate the Depreciable Amount

Cost $120,000

Less Residual(2,000)

Depreciable$118,000

Now let calculate the annual amortization

Annual amortization=$118,000/10 years

Annual amortization= $11,800

Therefore Using the straight-line method, what would Best record as annual amortization is $11,800