Southwest Airlines provides scheduled air transportation services in the United States. Like many airlines, Southwest leases many of its planes from Boeing Company. In its long-term debt disclosure note included in the financial statements for the year ended December 31, 2013, the company listed $56 million in lease obligations. The existing leases had an approximate eight-year remaining life and future lease payments average approximately $8 million per year. Required: 1. Determine the effective interest rate the company used to determine the lease liability assuming that lease payments are made at the end of each fiscal year. 2. Repeat requirement 1 assuming that lease payments are made at the beginning of each fiscal year.
Southwest Airlines provides scheduled air transportation services in the United States. Like many airlines, Southwest leases many of its planes from Boeing Company. In its long-term debt disclosure note included in the financial statements for the year ended December 31, 2013, the company listed $56 million in lease obligations. The existing leases had an approximate eight-year remaining life and future lease payments average approximately $8 million per year. Required: 1. Determine the effective interest rate the company used to determine the lease liability assuming that lease payments are made at the end of each fiscal year. 2. Repeat requirement 1 assuming that lease payments are made at the beginning of each fiscal year.
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