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What is the total amount of lease expense

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Question - John Smith enters into a lease agreement with Offshore Machinery LLC to lease a machine for a four year term. The leasing terms specify annual payments of $2,885,915 at the end of each leasing year, with lease payments in the present value of $10 million using an interest rate of 6%. The lease asset would be amortized over the four year lease term. The tractor will be returned to the lessor at the end of the lease term with no option to purchase the asset. The current market value of the asset used is $12 million.

Required -

1. What type of lease is being used for the machine, operating or finance?

2. What is the total amount of lease expense that will be recognized in the first year of the lease agreement?

Reference no: EM133138871

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