Use the Following Information for Questions 31-32

question 78

Multiple Choice

Use the following information for questions 31-32.
On January 2, 2020, Cruise Ltd. signed a ten-year non-cancellable lease for a heavy-duty drill press. The lease required annual payments of $ 52,500, starting December 31, 2020, with title passing to Cruise at the end of the lease. Cruise 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. Cruise uses straight-line depreciation for all its plant assets. The lease payments were determined to have a present value of $ 352,279, based on an implicit interest rate of 8%.
-On their 2020 income statement, how much depreciation expense should Cambridge report in connection with this lease?

• A) $ 17,614
• B) $ 10,500
• C) $ 21,000
• D) $ 35,228

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Definitions:

Estimated Warranty Liability

A liability recorded on the financial statements to cover the expected cost of product warranties.

FICA Taxes

Federal Insurance Contributions Act taxes are payroll taxes deducted from employees' paychecks and matched by employers to fund Social Security and Medicare.

Medicare Taxes

Taxes collected in the United States to fund the Medicare program, typically withheld from employee earnings.

Union Dues

Fees paid by workers to labor unions for membership and benefits.