Brandon Corporation has leased an asset that they are correctly recording as a capital lease.When they signed the lease the asset was recorded at $39,925.The interest rate used in the calculations is 8%, the asset has an expected useful life to Brandon of 8 years, and the annual lease payment is $10,000.The total expense related to the lease reported on Brandon's income statement in the first year of the lease is closest to?

Question

Quizplus · Accepted Answer

To calculate the total expense related to the lease reported on Brandon's income statement in the first year, we need to consider the amortization of the asset and the interest expense.

First, we calculate the annual amortization of the asset:
$39,925 / 8 years = $4,990.63 per year

Then, we calculate the interest expense on the lease:
Beginning lease liability = $39,925
Interest expense = Beginning lease liability x Interest rate = $39,925 x 8% = $3,194

Total expense related to the lease reported on Brandon's income statement in the first year:
$4,990.63 (amortization) + $3,194 (interest expense) = $8,184.63

Therefore, the closest answer is C)$8,184.

Brandon Corporation Has Leased an Asset That They Are Correctly