Reference no: EM132725012

Barry Limited (lessee) entered into a finance lease agreement with the following terms:

lease term is 4 years

estimated economic life of the leased asset (equipment) is 5 years

Right of use asset amount at the inception was $85,695

Annual lease payments of $30,000 each payable in advance.

residual value at the end of the lease term is $5,000 but no amount was guaranteed by the lessee

Problem 1: Which one of the following is correct for Barry Limited?

Select one:

Option 1: Depreciation entry;

Dr Depreciation $16,139

Cr Accumulated depreciation $16,139

Option 2: To record the asset at the inception;

Dr Right of use asset $85,695

Cr Cash $30,000

Cr Equipment $55,695

Option 3: To record the asset at the inception;

Dr Right of use asset $85,695

Cr Cash $30,000

Cr Lease liability $55,695

Option 4: Depreciation entry;

Dr Depreciation $20,174

Cr Accumulated depreciation $20,174