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Becky Company: Operating Lease Rent Expense

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On January 1, 2014, Becky Company signed a lease agreement requiring six annual payments of $45,000, beginning December 31, 2014. The lease qualifies as an operating lease. Becky's incremental borrowing rate was 9% and the lessor's implicit rate, known by Becky, was 10%. The present value factors of an ordinary annuity of $1 for six periods for interest rates of 9% and 10% are 4.485919 and 4.355261, respectively.

What would be the interest and rent expenses related to this lease for 2014?

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Solution Summary

A paragraph explains the theory and then the JE at December 31, 2014 is given.

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An operating lease does not have interest expenses, only rent expense. A capital lease would require that we capitalize and ...

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Carol Sargent, PhD
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  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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