Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2021 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement: (a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $574,864 are due on January 1 of each year.
(b) The fair value of the machine on January 1, 2021, is $1,600,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease.
(c) Alt depreciates all machinery it owns on a straight-line basis.
(d) Alt’s incremental borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates.
(e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful.
Future Value of Ordinary Annuity of 1
Period 5% 6% 8% 10% 12%
1 1.00000 1.00000 1.00000 1.00000 1.00000
2 2.05000 2.06000 2.08000 2.10000 2.12000
3 3.15250 3.18360 3.24640 3.31000 3.37440
4 4.31013 4.37462 4.50611 4.64100 4.77933
5 5.52563 5.63709 5.86660 6.10510 6.35285
6 6.80191 6.97532 7.33592 7.71561 8.11519
7 8.14201 8.39384 8.92280 9.48717 10.08901
8 9.54911 9.89747 10.63663 11.43589 12.29969
9 11.02656 11.49132 12.48756 13.57948 14.77566
10 12.57789 13.18079 14.48656 15.93743 17.54874
Present Value of an Annuity Due of 1
Period 5% 6% 8% 10% 12%
 1 1.00000 1.00000 1.00000 1.00000 1.00000
 2 1.95238 1.94340 1.92593 1.90909 1.89286
 3 2.85941 2.83339 2.78326 2.73554 2.69005
 4 3.72325 3.67301 3.57710 3.48685 3.40183
 5 4.54595 4.46511 4.31213 4.16986 4.03735
 6 5.32948 5.21236 4.99271 4.79079 4.60478
 7 6.07569 5.91732 5.62288 5.35526 5.11141
 8 6.78637 6.58238 6.20637 5.86842 5.56376
 9 7.46321 7.20979 6.74664 6.33493 5.96764
10 8.10782 7.80169 7.24689 6.75902 6.32825
If Alt accounts for the lease as an operating lease, what expenses will be recorded as a consequence of the lease during the fiscal year ended December 31, 2021?
Amortization Expense and Interest Expense
Interest Expense
Lease Expense
Amortization Expense