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ob3ymysins
ob3ymysins
13.05.2021 • 
Business

On January 1, 2021, Ivanhoe Corporation signed a 10-year noncancelable lease for certain machinery. The terms of the lease called for Ivanhoe to make annual payments of $145015 at the end of each year for 10 years with the title passing to Ivanhoe at the end of this period. The machinery has an estimated useful life of 15 years and no salvage value. Ivanhoe uses the straight-line method of depreciation for all of its fixed assets. Ivanhoe accordingly accounted for this lease transaction as a financial lease. The lease payments were determined to have a present value of $1018525 at an effective interest rate of 7%. With respect to this lease, Ivanhoe should record for 2021: a. Interest expense of $60228 and depreciation expense of $158455.
b. Interest expense of $95000 and depreciation expense of $192410
c. Interest expense of $60228 and depreciation expense of $113182
d. rent expense of $190000.

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