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Becky Company: Operating Lease Rent Expense

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?

Solution Preview

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

Solution Summary

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