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| On January 1, year 1, Mollat Co. signed a seven-year lease for equipment having a ten-year economic life. The present value of the monthly lease payments equaled 80% of the equipment’s fair value. The lease agreement provides for neither a transfer of title to Mollat nor a bargain purchase option. In its year 1 income statement Mollat should report A. Rent expense equal to the year 1 lease payments. B. Rent expense equal to the year 1 lease payments less interest expense. C. Lease amortization equal to one-tenth of the equipment’s fair value. D. Lease amortization equal to one-seventh of 80% of the equipment’s fair value. |
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