 # leases

A company leased an airplane under the following terms The lease is 10yr capital lease PV of lease payments discounted at the appropriate interest rate (10%) is \$3,000,000 The company uses straight line depreciation The company does not own the asset of have a purchase option at the end of the lease In the first year, the reported lease related expense is a 300,000 b 360,000 c 548,000 d 600,000

I know, it can’t be this simple… A? 3m*0.1 = 300K should be hitting the Income Statement in the form of Rental-Lease-Expense if it’s a operating lease.

I’d go with A too, although i’m not sure if it’s an operating expense (operating lease) or a depreciation expense (capitalization). the question would be harder and more confusing if the numbers were changed a bit. Please somebody jump in and explain

answer was D. Can anyone explain? The was in SS Exam 3 afternoon session Q 66

1st yr 300k depreciation expense 300k interest expense 2nd yr 300k de 270k ie

I surely don’t see how this answer is D. with the numbers up there it’s got to be A

The total lease is 4882k PV = 3M, n = 10, i = 10. So, each lease payment if operating will be 488k and each yr ie declines by 10% 300*10 + 300+.9*300+.9^2*300+… which should add up to 4882k

I’m with a too.

I would think this is D. PV ( MLP ) = Lease Liability = Asset = 3M. 10% Interest on that = 300000 Depreciation 10 year = 300000 So lease exp. for Year 1 = 600K (Lease Exp = Interest + Deprn). Answer choice D CP

my answer is D calculations is exactly the same as cpk123

Oops. Yep I agree with that. D, it is.

It is absolutely D. Total capital lease expense includes the interest expense (and not prin payment) plus depreciation expense.

I agree, tt is D. Some of you are thinking its an operating lease, yet it states in the problem that its an capital lease. So, 300k depreciation + 300k interest = answer D.