Please show work and explain. New Mexico Corporation leased equipment under an a
ID: 2510895 • Letter: P
Question
Please show work and explain.
New Mexico Corporation leased equipment under an agreement that qualifies as a finance lease. The present value of the minimum lease payments is $120,000. The lease term is five years. After the expiration of the five year lease, the lease contains a bargain purchase option. The expected economic life of the asset is eight years. Using the straight-line method, what would New Mexico record as annual amortization expense on this leased equipment?
A) $24,000
B) $15,000
C) $12,000
D) $30,000
Explanation / Answer
Ans. Option B $15000
Annual amortization expenses = minimum lease payment / economic life of asset
= 120000 / 8
= $15000