On January 2, 2018, Nori Mining Co. (lessee) entered into a 5-year lease for dri

Question

On January 2, 2018, Nori Mining Co. (lessee) entered into a 5-year lease for drilling equipment. Nori accounted for the acquisition as a finance lease for $240,000, which includes a $10,000 purchase option at the end of the lease. Nori is reasonably certain to exercise the purchase option. Nori estimates that the equipment’s fair value will be $20,000 at the end of its 8-year life. For the year ended December 31, 2018, what amount should Nori recognize as amortization expense on the right-of-use asset?

Explanation / Answer

Calculation of Amortization expense on the right of use asset for the year ended December 31, 2018:

Value of Leased Asset recorded in books of accounts = 240,000

Expected value at the end of life of asset = 20,000

Expected Life of asset = 8 years

Amortization Expense for the year ended December 31, 2018 = (240,000-20,000)/8 = 27,500

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.