Response to the following problem:
Medical imaging co leased equipment to family care, inc for 10 years beginning on January 1year 1. The first lease payments of 12,000 was made on January 1, year 1 with all subsequent lease payments due annually on December 31. The equipment has an estimated useful life of 12 years and it's fair value is equal to the present value of the minimum lease payments. The interest rate implicit in the lease is 10% and is known to Family Care, Inc. Family Care, Inc's incremental borrowing rate is 11%. Family Care uses GAAP. At the end of the lease term, Family Care, Inc does not have the option to purchase the equipment and ownership will not transfer. Present value amounts: PV of an annuity due of $1 for 10 periods at 10% 6.759. PV of an annuity due of $1 for 10 periods at 11% 6.537. Will this lease be accounted for as an operating lease or a capital lease by the lesse? What is the PV of the minimum lease payments? Using the amortization table below, calculate the interest expense accrued during year 1. 1/1 Year 1 interest lease obligation? Amortization of lease liability? Carrying amount of lease? 12/31 year 1 interest lease obligation? Amortization of lease liability? Carry amount of lease?
Calculate the annual depreciation expense of the lessee if the lessee uses the straight-line method of depreciation.