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Question
On January 1, 2012, Cole Corporation entered into a ten-year lease agreement. The following summarizes the agreement:
Payments of $30,000 are due at the beginning of each year; the first payment was made on January 1, 2012.
The leased asset has an estimated useful life of 15 years.
Title to the leased asset is transferred to Cole at the end of the lease term.
The implicit interest rate known by Cole is 10%.
Cole's incremental borrowing rate is 12%.
Cole uses the straight-line depreciation method.
The asset's estimated salvage value is $50,000 after 10 years and is $15,000 after 15 years.
Required:
1. Determine the interest expense associated with the lease for the year ended December 31, 2012.
2. Determine the depreciation expense for the year ended December 31, 2012.
Answer
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