Use the Following Information for Questions 104 and 105

question 6

Multiple Choice

Use the following information for questions 104 and 105.
On January 2, 2015, Hernandez, Inc. signed a ten-year noncancelable lease for a heavy duty drill press. The lease stipulated annual payments of $200,000 starting at the beginning of the first year, with title passing to Hernandez at the expiration of the lease. Hernandez treated this transaction as a capital lease. The drill press has an estimated useful life of 15 years, with no salvage value. Hernandez uses straight-line depreciation for all of its plant assets. Aggregate lease payments were determined to have a present value of $1,200,000, based on implicit interest of 10%.
-In its 2015 income statement, what amount of interest expense should Hernandez report from this lease transaction?

• A) $0
• B) $81,000
• C) $108,000
• D) $120,000

---

Definitions:

Deviance

Behaviors or actions that violate social norms or values, which can result in social disapproval or sanction.

Social Norms

Informal understandings that govern the behavior of members of a society, guiding their actions and interactions.

Deviant

An individual or behavior that deviates from the accepted norms of society.

Norm

A norm is a standard or rule that guides behavior within a group, often reflecting the group's expectations for how its members should act under given circumstances.