Kay Animal Hospital leased a building to expand its services downtown. The 10-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?

Question

Quizplus · Accepted Answer

Under a capital lease, the lessee records the leased asset as a fixed asset and records depreciation on a straight-line basis. The annual depreciation would be calculated as the cost of the asset ($67,100) divided by the lease term (10 years), which would result in depreciation expense of $6,710 per year.

Kay Animal Hospital Leased a Building to Expand Its Services