Durney Co. recorded a right-of-use asset of $800,000 in a ten-year finance lease. The interest rate charged by the lessor was 10%. The balance in the right-of-use asset after two years will be:
A) $648,000
B) $640,000
C) $880,000
D) $968,000

Question

Quizplus · Accepted Answer

In a finance lease, the lessee amortizes its right of use asset on a straight line basis. In this case, amortization is $800,000 / 10 years, or $80,000 per year. So, after 2 years, the balance will be $800,000 - 160,000 = $640,000.

Durney Co Recorded a Right-Of-Use Asset of $800,000 in a Ten-Year