Reference no: EM13151449
On January 1, 2011, Ogleby Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Ogleby to make annual payments of $60,000 at the end of each year for five years with title to pass to Ogleby at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Ogleby uses the straight-line method of depreciation for all of its fixed assets. Ogleby accordingly accounts for this lease transaction as a capital lease. The minimum lease payments were determined to have a present value of $227,448 at an effective interest rate of 10%.
With respect to this capitalized lease, for 2011 Ogleby should record:
A) rent expense of $60,000.
B) interest expense of $22,745 and depreciation expense of $45,489.
C) interest expense of $22,745 and depreciation expense of $32,493.
D) interest expense of $30,000 and depreciation expense of $45,489.
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