On January 1, 2015, Dean Corporation Signed a Ten-Year Noncancelable

question 116

Multiple Choice

On January 1, 2015, Dean Corporation signed a ten-year noncancelable lease for certain machinery. The terms of the lease called for Dean to make annual payments of $150,000 at the end of each year for ten years with the title passing to Dean at the end of this period. The machinery has an estimated useful life of 15 years and no salvage value. Dean uses the straight-line method of depreciation for all of its fixed assets. Dean accordingly accounted for this lease transaction as a capital lease. The lease payments were determined to have a present value of $1,006,512 at an effective interest rate of 8%. With respect to this capitalized lease, Dean should record for 2015

• A) lease expense of $150,000.
• B) interest expense of $67,101 and depreciation expense of $57,102.
• C) interest expense of $80,521 and depreciation expense of $67,101.
• D) interest expense of $68,522 and depreciation expense of $100,652.

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