Happy Corporation leased a building from Sensor Company.The ten-year lease is recorded as a capital lease.The annual payments are $10,000,and the recorded cost of the asset is $67,100.The straight-line method is used to calculate depreciation.Which of the following statements is true?
A)Depreciation expense of $6,710 will be recorded each year.
B)Depreciation expense of $10,000 will be recorded each year.
C)No depreciation expense will be recorded by Happy Corporation.
D)No interest expense will be recorded by Happy Corporation.

Question

Quizplus · Accepted Answer

Since the lease is recorded as a capital lease, Happy Corporation will record depreciation expense over the useful life of the asset. The cost of the asset is $67,100, and since the lease is for 10 years, the annual depreciation expense will be $6,710 ($67,100/10). Interest expense will also be recorded by Happy Corporation, but the question does not provide enough information to calculate it.

Happy Corporation Leased a Building from Sensor Company