On January 1, 2025, Sandhill Corporation signed a five-year noncancelable lease for equipment.
The terms of the lease called for Sandhill to make annual payments of $196000 at the beginning of each year for five years beginning on January 1, 2025 with the title passing to Sandhill at the end of this period.
The equipment has an estimated useful life of 7 years and no salvage value. Sandhill uses the straight-line method of depreciation for all of its fixed assets.
Sandhill accordingly accounts for this lease transaction as a finance lease. The lease payments were determined to have a present value of $830985 at an effective interest rate of 9%.
In 2025, Sandhill should record interest expense of
O $138851.
O $57149.
O $74789.
O $121211.