What cullumber should record interest expense of

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On January 1, 2021, Cullumber Corporation signed a 5-year noncancelable lease for equipment. The terms of the lease called for Cullumber to make annual payments of $212000 at the beginning of each year for 5 years beginning on January 1, 2021 with the title passing to Cullumber at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Cullumber uses the straight-line method of depreciation for all of its fixed assets. Cullumber accordingly accounts for this lease transaction as a finance lease. The lease payments were determined to have a present value of $898821 at an effective interest rate of 9%.

Problem 1: In 2021, Cullumber should record interest expense of

Option 1: $150186.

Option 2: $61814.

Option 3: $131106.

Option 4: $80894.

Reference no: EM132781120

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