Fortuna Ltd Has Leased Some Machinery to Be Used in Its

question 1

Multiple Choice

Fortuna Ltd has leased some machinery to be used in its business for an annual payment of $4000 due at the end of each year.The lease is non-cancellable and at the end of five years the machinery will have no value.The machinery could be purchased outright for $14 420.The rate of interest implicit in the lease agreement is 12%.At the end of the second year,Fortuna should make the following entry:

• A)A) Dr Lease Liability \(\$ 1458\)
• Dr Interest Expense \(\quad \$ 2542\)
• Dr Cash at Bank\(\quad \$ 4000\)
• B)Dr Interest Expense \(\quad \$ 4000\)
• Dr Cash at Bank\(\quad \$ 4000\)
• C)C) Dr Lease Liability \(\quad \$ 2542\)
• Dr Interest Expense \(\quad \$ 1458\)
• Dr Cash at Bank\(\quad \$ 4000\)
• D)\(\begin{array} { l l }
• \text { Dr Rent Expense } & \$ 4000 \\
• \text { Cr Cash at Bank } & \$ 4000
• \end{array}\)

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