Five-year noncancelable lease for equipment

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Reference no: EM13131732

On January 1, 2011, Sauder Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Sauder to make annual payments of $50,000 at the beginning of each year for five years with title to pass to Sauder at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Sauder uses the straight-line method of depreciation for all of its fixed assets. Sauder accordingly accounts for this lease transaction as a capital lease. The minimum lease payments were determined to have a present value of $208,493 at an effective interest rate of 10%.

In 2012, Sauder should record interest expense of:

A) $10,849.

B) $12,434.

C) $15,849.

D) $17,434.

Reference no: EM13131732

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