Johnson Institute leased a new machine having an expected useful life of 12 years. The noncancelable lease term is 10 years, and Johnson may exercise a purchase option at the end of the noncancelable term. The machine should be capitalized by Johnson and depreciated over
A) 9 years.
B) 12 years.
C) 10 years.
D) 10 or 12 years at Johnson's option.

Question

Quizplus · Accepted Answer

Since the lease term is for 10 years, Johnson should depreciate the machine over the same period of time. The purchase option at the end of the noncancelable term does not affect the initial depreciation period.

Johnson Institute Leased a New Machine Having an Expected Useful