Cady Salons leased equipment from Smith Co. on January 1, 2018, in an operating lease. The present value of the lease payments discounted at 10% was $80,000. Ten annual lease payments of $12,000 are due at each January 1 beginning January 1, 2018. The amortization of the right-of-use asset for the reporting year ending December 31, 2018, would be:

Question

Quizplus · Accepted Answer

In an operating lease, the lessee amortizes its right-of-use asset at an amount so that the total of interest expense and amortization will be a straight-line amount equal to the annual payments, $12,000 per year. Interest the first year will be 10% × ($80,000 ? 12,000) = $6,800. So, amortization will be $12,000 ? 6,800 = $5,200.

Cady Salons Leased Equipment from Smith Co