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27 February, 23:06

On January 2, 20X1, Cole Co. signed an eight-year noncancelable lease for a new machine, requiring $15,000 annual payments at the beginning of each year. The machine has a useful life of 12 years, with no salvage value. Title passes to Cole at the lease expiration date. Cole use straight-line depreciation for all of its plant assets. Aggregate lease payments have a present value on January 2, 20X1, of $108,000, based on an appropriate rate of interest. For 20X1, Cole should record amortization expense for the leased machine at:

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  1. 27 February, 23:28
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    Cole should record amortization expense for the leased machine at $9,000.

    Explanation:

    Machine cost would be recorded in book at = present value of Aggregate lease payments

    Machine cost would be recorded in book at = $108,000

    Depreciation (amortization) expense for the leased machine in first year = (Machine cost - salvage value) / Useful life

    Depreciation (amortization) expense for the leased machine in first year = ($108,000 - 0) / 12

    Depreciation (amortization) expense for the leased machine in first year = $ 9,000

    Therefore, Cole should record amortization expense for the leased machine at $9,000.
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