Question

Emporia Corporation is a lessee with a finance lease. The asset is recorded at $900,000 and has an economic life of 8 years. The lease term is 5 years. The asset is expected to have a fair value of $300,000 at the end of 5 years, and a fair value of $100,000 at the end of 8 years. The lease agreement provides for the transfer of title of the asset to the lessee at the end of the lease term. What amount of amortization expense would the lessee record for the first year of the lease

Answer 1

$100,000

Step-by-step explanation:

Calculation of Depreciation expense:

Depreciation expense that lessee record for the first year of the lease = 900,000-100,000

= 800,000/8 = 100,000

Amount of Depreciation expense that lessee record for the first year of the lease = 100,000