On January 1, 2021, Freshbooks Industries Signed an 18-Year Lease

question 55

Multiple Choice

On January 1, 2021, Freshbooks Industries signed an 18-year lease for heavy equipment. The lease is accounted for by Freshbooks as a finance lease. The lease required annual payments of $19,000 beginning December 31, 2021. The heavy equipment has an estimated useful life of 20 years, with $2,000 residual value. Freshbooks uses straight-line depreciation for all its plant assets. The lease payments have a present value of $159,000, based on a 10% interest rate
-How much interest expense should Freshbooks report for the lease on its 2021 income statement?

• A)$19,000
• B)$1,900
• C)$14,000
• D)$15,900
• E)NONE

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Definitions:

Accounts Receivable

Money owed to a business by its clients or customers for goods or services delivered but not yet paid for.

Capital

Assets of monetary value, like cash and merchandise, employed by a business for the creation of goods or services.

Cash

Currency and coins, plus bank balances, that are readily available for use in transactions and other financial operations.

Income Statement

A financial statement that shows a company's revenue and expenses over a particular period, illustrating how net income or net loss was achieved.