Aflac Corporation leased machinery under a finance lease arrangement with its lessee.At January 1,2021,the first day of the lease,the asset and lease obligation were recorded for $68,000.The first lease payment of $13,276 was due December 31,2021 and the interest rate they used in their calculations was 7%.The lease term was 10 years.Which of the following best describes what would be reported on Aflac's statement of income for the year ending December 31,2021?

Question

Quizplus · Accepted Answer

For a finance lease, interest expense and depreciation expense are reported separately on the income statement. The interest expense for the first year is calculated on the initial lease obligation of $68,000 at 7%, which equals $4,760. The depreciation expense is calculated by dividing the initial value of the leased asset ($68,000) by the lease term (10 years), resulting in $6,800 per year.

Aflac Corporation Leased Machinery Under a Finance Lease Arrangement with Its