On January 1, 2018, PokemonGo Company leased equipment to Waldo Corporation under a lease agreement that qualifies as an operating lease to Waldo. The present value of the end-of-year lease payments of $138,585 discounted at 5% is $600,000. The expected economic life of the asset is seven years. The lease term is five years. What would Waldo record as amortization in 2018?

Question

Quizplus · Accepted Answer

In an operating lease, amortization is plugged to cause interest plus amortization to equal the periodic payment. Interest in 2018 is 5% × $600,000 = $30,000. $138,585 - 30,000 = $108,585.

On January 1, 2018, PokemonGo Company Leased Equipment to Waldo