Question

On January 1, 2021, Blossom Corporation signed a 10-year noncancelable lease for certain machinery. The terms of the lease called for Blossom to make annual payments of $185015 at the end of each year for 10 years with the title passing to Blossom at the end of this period. The machinery has an estimated useful life of 15 years and no salvage value. Blossom uses the straight-line method of depreciation for all of its fixed assets. Blossom accordingly accounted for this lease transaction as a financial lease. The lease payments were determined to have a present value of $1241466 at an effective interest rate of 8%. With respect to this lease, Blossom should record for 2021

a. interest expense of $82764 and amortization expense of $69431.
b. interest expense of $99317 and amortization expense of $82764.
c. interest expense of $83317 and amortization expense of $124147.
d. lease expense of $99317.

Answer 1

the interest expense os $99,317 and the depreciation expense of $82,764

Step-by-step explanation:

The computation of the interest expense and the depreciation expense is given below:

Interest expense is

= Present value × effective interest rate

= $1,241,466 × 8%

= $99,317

And, the depreciation expense is

= Present value ÷ estimated life

= $1,241,466 ÷ 15 years

= $82,764

Hence, the interest expense os $99,317 and the depreciation expense of $82,764

This is the answer but the same is not provided in the given options