On January 1, 2019, Shak, Inc. signed a noncancelable lease for a sneaker shining machine. The machine has an estimated useful life of nine years. The term of the lease is a six-year term with title passing to Shak at the end of the lease. The agreement called for annual payments of P40,000 starting at the end of the first year. Assume aggregate lease payments were determined to have a present value of P200,000, based on implicit interest of 12 percent. What amount of interest expense should Shak report in its 2019 income statement from this lease transaction?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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On January 1, 2019, Shak, Inc. signed a noncancelable lease for a sneaker shining machine. The machine has an estimated useful life of nine years. The term of the lease is a six-year term with title passing to Shak at the end of the lease. The agreement called for annual payments of P40,000 starting at the end of the first year. Assume aggregate lease payments were determined to have a present value of P200,000, based on implicit interest of 12 percent. What amount of interest expense should Shak report in its 2019 income statement from this lease transaction? 

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