Question

Refer to the following lease amortization schedule. The 10 payments are made annually starting with the beginning of the lease. Title does not transfer to the lessee and there is no purchase option or guaranteed residual value. The asset has an expected economic life of 12 years. The lease is noncancelable.

Payment		Cash Payment		Effective Interest		Decrease in balance		Outstanding Balance
								65,370
1		10,000				10,000		55,370
2		10,000		6,091		3,909		51,461
3		10,000		5,661		4,339		47,122
4		10,000		5,183		4,817		42,305
5		10,000		4,654		5,346		36,959
6		10,000		4,065		5,935		31,024
7		10,000		3,413		6,587		24,437
8		10,000		2,688		7,312		17,125
9		10,000		?		?		?
10		10,000		?		?		?

What amount would the lessee record as annual amortization on the right-of-use asset using the straight-line method? (Round your answer to the nearest whole dollar.)

A. $10,000.

B. $6,601.

C. $6,537.

D. $5,537.

Answer 1

Computation the amount of annual amortization is:

Amount of annual amortization = Total outstanding balance / No. of payments

= $65,370 / 10

= $6,537

Hence, the amount of annual amortization is $6,537, that is, the (C) option is correct.