Compute the total rental expense

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Question - Tradeall Inc. leases automobiles for its sales force. On January 1, 2020, the company leased 100 automobiles and agreed to make lease payments of $10,000 per automobile each year. Assume an effective rate of 10 percent.

a. Compute the annual rental expense if the lease is treated as an operating lease.

b. Prepare the journal entry on January 1, 2020, if the lease is for five years. What dollar amount represents an approximation of the fair market value of the automobiles?

c. Assume that the automobiles are depreciated over a five-year life, using the straight-line method with no salvage value. Compute the total rental expense (interest and depreciation) associated with the lease during the first year if the lease is for more than one year.

Reference no: EM133059691

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