Question

On January 1, 2021, Sauder Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Sauder to make annual payments of $200,000 at the beginning of each year for five years beginning on January 1, 2021. The equipment has an estimated useful life of 10 years and no salvage value. Sauder accordingly accounts for this lease transaction as an operating lease. The lease payments were determined to have a present value of $833,972 at an effective interest rate of 10%. In 2021, the right-of-use asset should be reduced by Group of answer choices $63,397. $116,604. $83,396. $136,603.

Answer 1

$83,396.

Step-by-step explanation:

The right-of-use asset must be subsequently be measured using IAS 16 principles applied on the cost of the asset

Depreciation Charge in 2021 = Cost - Residual Value / Number of Useful Life

=($833,972 - $0) / 10 years

= $83,397

Therefore the Carrying amount of the right-of-use asset will be $833,972 - $83,397 = $750,572 at the end of 2021.

Answer 2

$63,397

Step-by-step explanation:

In 2021, Sauder corporations should record interest expense of:833,972 – 200,000 = 633,972 (12/31) * 10% = 63,397