Reference no: EM132928102

Baosteel Company leases an equipment on January 1, 2020. Estimated economic life of the leased asset is 10 years with an expected salvage value of zero at the end of 10 years. The company will depreciate this asset on a straight-line basis over its economic life. The lease has a fixed noncancellable term of 10 years with annual minimum lease payments of ¥16,304,155 paid at the end of each year. Interest rate on the lease is 6% per year. The PV of an annuity of 10 payment of $1 each discounted at 6% is a factor of 7.36009.

Question 1: What is the depreciation expense and interest expense for the lease in year 2020? (Round to the nearest dollar)

Option 1: 12 million, 7.2 million
Option 2: 7.2 million, 12 million
Option 3: 10 million, 7 million
Option 4: 12 million, 16.3 million
Option 5: None of the above

Question 2: What is the leased asset and leased liability on January 1, 2020 respectively? (Round to the nearest dollar)

Option 1: 120 million, 120 million
Option 2: 108 million, 111 million
Option 3: 120 million, 111 million
Option 4: 108 million, 120 million
Option 5: None of the above