Question:
On January 1, 2004, James Company leased a machine for 10 years that would have been purchased for $100,000. The lesser used an implicit interest rate of 10 % in evaluating the lease payments of $14,795, the first of which was made when the lease was signed.
1. If James is aware of the lessor's implicit interest rate, during 2004, it should record
a. an asset of $100,000.
b. an asset of $85,205.
c. interest expense of $10,000.
d. rent expense of $14,795.
2. Considering that an asset of $100,000 should be recorded, how much interest expense would be reported in 2004?
a. $8,521
b. $10,000
c. $14,795
d. $20,000
3.. If James Company is not aware of the lessor's implicit interest rate and its incremental borrowing rate is 14 percent, during 2004 it would record
a. an asset of $100,000.
b. an asset of $85,205.
c. interest expense of $10,000.
d. rent expense of $14,795.