Answered

Get expert insights and community-driven knowledge on IDNLearn.com. Ask your questions and get detailed, reliable answers from our community of experienced experts.

Flimm Company leases an asset over its estimated useful life of six years. At the inception of the lease, the present value of the lease payments is $240,000. The market value of the leased asset is $258,000.
Flimm uses the straight-line method to allocate lease-related assets to accounting periods during which benefits are derived from the leased assets. To allocate the costs of the related asset, Flinn should debit
a) amortization expense for $43,000
b) amortization expense for $40,000
c) depreciation expense for $43,000
d) depreciation expense for $40,000

Sagot :

Answer: amortization expense for $40,000

Explanation:

Based on the question given, we've to choose between the lower of the fair value of the equipment or the present value of the lease payments. Hence, in this case we will choose $240000.

Then, the amortization expense per year will be:

= $240,000 / 6 years

= $40,000

Therefore, the company should debit amortization expense for $40,000.

Your participation is crucial to us. Keep sharing your knowledge and experiences. Let's create a learning environment that is both enjoyable and beneficial. IDNLearn.com has the solutions to your questions. Thanks for stopping by, and come back for more insightful information.