Use the Following Information for Questions

question 20

Multiple Choice

Use the following information for questions.
On January 1, 2011, Ogleby Corporation signed a five-year noncancelable lease for equipment.The terms of the lease called for Ogleby to make annual payments of $60,000 at the end of each year for five years with title to pass to Ogleby at the end of this period.The equipment has an estimated useful life of 7 years and no residual value.Ogleby uses the straight-line method of depreciation for all of its fixed assets.Ogleby accordingly accounts for this lease transaction as a finance lease.The minimum lease payments were determined to have a present value of $227,448 at an effective interest rate of 10%.
-With respect to this capitalized lease, for 2011 Ogleby should record

• A)rent expense of $60,000.
• B)interest expense of $22,745 and depreciation expense of $45,489.
• C)interest expense of $22,745 and depreciation expense of $32,493.
• D)interest expense of $30,000 and depreciation expense of $45,489.

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Definitions:

Financial Accounting Standards Board

An independent organization responsible for establishing and improving financial accounting and reporting standards in the United States.

Net Income

The total profit of a company after accounting for all expenses and taxes; also known as net earnings or net profit.

Cash Receipts

The monetary amounts received by a company during a specific period for goods sold, services provided, or any other business activities.

Bank Loan

A sum of money borrowed from a bank that must be repaid with interest over a predetermined period.