B is corrent. The requirement is to determine the amount of interest expense that should be reported. This problem requires you to calculate the present value of the minimum lease payments, which is the present value of the ordinary annuity of $60,000 at 5% for 6 periods, or $304,542 (5.0757 x $60,000). This is the correct answer because interest expense for Year 1 is calculated as 5% of the carrying value of $304,542, or $15,227.
A is incorrect. This problem requires you to calculate the present value of the minimum lease payments, which is the present value of the ordinary annuity of $60,000 at 5% for 6 periods, or $304,542 (5.0757 x $60,000). This is the correct answer because interest expense for Year 1 is calculated as 5% of the carrying value of $304,542, or $15,227.
C is incorrect. This problem requires you to calculate the present value of the minimum lease payments, which is the present value of the ordinary annuity of $60,000 at 5% for 6 periods, or $304,542 (5.0757 x $60,000). This is the correct answer because interest expense for Year 1 is calculated as 5% of the carrying value of $304,542, or $15,227.
D is incorrect. This problem requires you to calculate the present value of the minimum lease payments, which is the present value of the ordinary annuity of $60,000 at 5% for 6 periods, or $304,542 (5.0757 x $60,000). This is the correct answer because interest expense for Year 1 is calculated as 5% of the carrying value of $304,542, or $15,227.
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