Question

Ivanhoe Co. purchases land and constructs a service station and car wash for a total of $465000. At January 2, 2021, when construction is completed, the facility and land on which it was constructed are sold to a major oil company for $500000 and immediately leased from the oil company by Ivanhoe. Fair value of the land at time of the sale was $45000. The lease is a 10-year, noncancelable lease. Ivanhoe uses straight-line depreciation for its other various business holdings. The economic life of the facility is 15 years with zero salvage value. Title to the facility and land will pass to Ivanhoe at termination of the lease. A partial amortization schedule for this lease is as follow:

Payments Interest Amortization Balance
Jan 2 2018 510000.00
Dec. 31, 2018 $83000.15 $51000.00 $32000. 47 7999.85
Dec. 31, 2019 83000.15 47799.99 35200. 44 2799.69
Dec. 31, 2020 83000.15 44279.97 38720.18 40 4079.51

The total lease-related expenses recognized by the lessee during 2021 is:_________

Answer 1

$80,833.32

Step-by-step explanation:

Correct date "Jan 2 2019 510000.00

Dec. 31, 2019 $83000.15 $51000.00 $32000. 47 7999.85

Dec. 31, 2021 83000.15 47799.99 35200. 44 2799.69

Dec. 31, 2022 83000.15 44279.97 38720.18 40 4079.51"

Computation of Lease related Expense Recognized by lessee in 2019

Depreciation Expense = (Total cost - Salvage value) / Estimated life

Depreciation Expense = $500,000 - $45,000 / 15

Depreciation Expense = $33,033.33

Interest Expense = $47,799.99

Total lease-related expenses = Depreciation Expense + Interest Expense

Total lease-related expenses = $33,033.33 + $47,799.99

Total lease-related expenses = $80,833.32