On January 1, 2016, Walter Scott Co. leased machinery under a 6-year lease. The machinery has a 9-year economic life. The present value of the monthly lease payments is determined to be 85% of the machinery's fair value. The lease contract includes neither a transfer of title to Scott nor a bargain purchase option. What amount should Scott report in its 2016 income statement?
A) Depreciation expense equal to one-ninth of the equipment's fair value.
B) Depreciation expense equal to one-sixth of the machinery's fair value.
C) Rent expense equal to the 2016 lease payments.
D) Rent expense equal to the 2016 lease payments minus interest.
Answer: C
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Accounting Chapter 15
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