Use the Following Information for Questions

question 66

Multiple Choice

Use the following information for questions.
On January 2, 2017, Cambridge Ltd.signed a ten-year non-cancellable lease for a heavy-duty drill press.The lease required annual payments of $35,000, starting December 31, 2017, with title passing to Cambridge at the end of the lease.Cambridge is accounting for this lease as a capital (finance) lease.The drill press has an estimated useful life of 20 years, with no residual value.Cambridge uses straight-line depreciation for all its plant assets.The lease payments were determined to have a present value of $215,000, based on an implicit interest rate of 10%.
-On their 2017 income statement, how much interest expense should Cambridge report in connection with this lease?

• A)$0
• B)$13,125
• C)$17,500
• D)$21,500

---

Definitions:

Increase Of Hazard

A scenario in insurance where the risk of loss becomes greater than what was contemplated at the time the policy was issued.

Highly-Explosive Chemicals

Substances that possess a high potential for explosion under certain conditions, posing significant risks.

Explosion

A sudden and violent burst or release of energy, often accompanied by loud noise and the release of gases, resulting from a chemical or physical reaction or an act of sabotage or accident.

Reservation Of Rights

A declaration by an insurer that provision of defense or coverage for a claim is not a waiver of their right to deny coverage later on grounds not yet known.