Allied Package Express Service properly capitalized at $93,598 a large truck it

Question

Allied Package Express Service properly capitalized at $93,598 a large truck it had leased on January1, 2008. The truck has a 14-year useful life. Title to the truck passes to Allied at the end of the 12-yearlease term. Allied depreciates other similar trucks on the straight-line method with no salvage value.The lease agreement calls for annual payments of $11,500 at the beginning of each year of the leaseterm. The interest rate implicit in the lease (which is known by the lessee) is 8%.How much depreciation and interest expense should Allied record for 2009? Depreciation InterestExpenseExpensea.$7,803 $6,568b.$6,686 $6,568c.$7,830 $6,173d.$6,686 $6,173

Explanation / Answer

Answer is Depreciation =6686

Interest =6173

Depreciation =93598/14 =6686

Opening Balance Lease Payment Interest Amount Oustanding at end of year 2008 93598 11500 6567.84 88665.8 2009 88665.84 11500 6173.2672 83339.1

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