Pisa, Inc

Accounting Nov 12, 2020

Pisa, Inc. leased equipment from Tower Company under a four-year lease requiring equal annual payments of $344,152, with the first payment due at the end of the first year. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4-year useful life and no salvage value. Pisa, Inc.’s incremental borrowing rate is 10% and the rate implicit in the lease (which is not known by Pisa, Inc.) is 8%. Pisa, Inc. uses the straight-line method to amortize similar assets. What is the amount of amortization expense recorded by Pisa, Inc. in the first year of the asset’s life?

PV Annuity Due PV Ordinary Annuity

8%, 4 periods 3.57710 3.31213

10%, 4 periods 3.48685 3.16986

$0 because the asset is amortized by Tower Company.

$284,968

$307,767

$300,000

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