Use the following information for questions 65 and 66.
On January 1, 2014, Ogleby Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Ogleby to make annual payments of $90,000 at the beginning of each year for five years with title passing to Ogleby at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Ogleby uses the straight-line method of depreciation for all of its fixed assets. Ogleby accordingly accounts for this lease transaction as a capital lease. The minimum lease payments were determined to have a present value of $375,289 at an effective interest rate of 10%.
-With respect to this capitalized lease, for 2014 Ogleby should record
A) rent expense of $90,000.
B) interest expense of $28,529 and depreciation expense of $75,058.
C) interest expense of $28,529 and depreciation expense of $53,613.
D) interest expense of $45,000 and depreciation expense of $90,978.

Question

Quizplus · Accepted Answer

The interest expense for 2014 is calculated as 10% of the present value of the lease ($375,289), which is $37,529. The depreciation expense is calculated by dividing the present value of the lease by the useful life of the equipment (7 years), resulting in $53,613.

Use the Following Information for Questions 65 and 66