Refer to the following lease amortization schedule. The five payments are made annually starting with the beginning of the lease. A $2,000 purchase option is reasonably certain to be exercised at the end of the five-year lease. The asset has an expected economic life of eight years.

-What amount would the lessee record as annual amortization on the asset using the straight-line method, assuming no residual value?
A) $3,325.
B) $6,920.
C) $4,325.
D) $5,320.

Question

Refer to the following lease amortization schedule. The five payments are made annually starting with the beginning of the lease. A $2,000 purchase option is reasonably certain to be exercised at the end of the five-year lease. The asset has an expected economic life of eight years.

-What amount would the lessee record as annual amortization on the asset using the straight-line method, assuming no residual value?

-What amount would the lessee record as annual amortization on the asset using the straight-line method, assuming no residual value?
A) $3,325. 
B) $6,920. 
C) $4,325. 
D) $5,320.

Quizplus · Accepted Answer

Because the purchase option is reasonably certain to be exercised, the asset is amortized over the longer period of the useful life. Amortization = $34,600/8 years = $4,325

Refer to the Following Lease Amortization Schedule