Mann Co. is the lessor in a six-year lease that the lessor classifies as a sales-type lease. The lease payments begin December 31, 2018. The agreement specifies that Woo Corp. make equal annual lease payments on December 31 of each year. In its 2019 income statement:a) Woo will report interest expense and amortization expense. b) Woo will report interest expense and lease expense. c) Mann will report interest revenue and depreciation expense. d) Mann will report interest revenue and amortization expense.

A) Woo will report interest expense and amortization expense.

Explanation:

A sales-type lease (or capital lease) takes place when the lease contract includes a transfer of ownership of the property to the lessee. usually this type of lease includes an option for the lessee to buy the equipment at a very low price at the end of the lease contract.

That is why the lessee (Woo) must record both an interest expense and an amortization expense because at the end of the lease, the property will be transferred to them.

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