Happy Corporation leased a building from Sensor Company. The 10-year lease is recorded as a capital lease. The annual payments are $10,000 and the recorded cost of the asset is $67,100. The straight-line method is used to calculate depreciation. Which of the following statements is true?

a. Depreciation expense of $6,710 will be recorded each year.

b. Depreciation expense of $10,000 will be recorded each year.

c. No depreciation expense will be recorded by Happy Corporation.

d. No interest expense will be recorded by Happy Corporation.

Question

Business

Brenda Santana

12 December, 14:49

Happy Corporation leased a building from Sensor Company. The 10-year lease is recorded as a capital lease. The annual payments are $10,000 and the recorded cost of the asset is $67,100. The straight-line method is used to calculate depreciation. Which of the following statements is true?

a. Depreciation expense of $6,710 will be recorded each year.

b. Depreciation expense of $10,000 will be recorded each year.

c. No depreciation expense will be recorded by Happy Corporation.

d. No interest expense will be recorded by Happy Corporation.

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Answers (1)

Know the Answer?

Olsen · Answer 1

a. Depreciation expense of $6,710 will be recorded each year.

Explanation:

Data provided in the question

The capital lease period = 10 years

Annual payments = $10,000

Recorded cost of the asset = $67,100

So by considering the above information, we have to find out the depreciation expense for each year by

= Recorded cost of the asset : Capital lease period

= $67,100 : 10 years

= $6,710

Hence, the correct option is a.