Reference no: EM133188285
Question - Company A agrees to lease a robotic welding unit from Company B on January 1, Year 1. The following conditions apply to the lease:
The term of the lease is five years, is non-cancellable, and requires payments of $101,350 at the beginning of each year.
The robotic welding unit will have a fair value of $50,000 at the end of the lease, an estimated useful life of five years, and $45,000 guaranteed residual value.
There are no renewal options, so the unit will revert to Company B at the termination of the lease.
Company A can borrow at a 5% interest rate.
Company A uses straight-line depreciation on its assets.
Company B set its annual rate of return at 4%, and Company A is aware of this rate.
Present values are as follows:
Present value of lease payments at 4%: $469,240.37
Present value of lease payments at 5%: $460,737.10
Present value of residual value at 4%: $38,457.00
Present value of residual value at 5%: $37,021.50
Required - How much amortization expense should Company A record at the end of Year 1?
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