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The equipment reverts back to the lessor at the end of the lease term. How much is interest expense on the lease for the first year? Select one: a. $5,472 b. $2,736 c. $5,322 d. $1,331

The equipment reverts back to the lessor at the end of the lease term. How much is interest expense on the lease for the first year? Select one: a. $5,472 b. $2,736 c. $5,322 d. $1,331

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The following information relates to Wilson, Inc.’s equipment lease with an inception date of January 1:

  • Fair value of equipment at lease inception, $91,200
  • Lease term, 4 years
  • Economic life of property, 5 years
  • Implicit interest rate, 6%
  • Annual lease payment due on December 31, $25,600
  • Present value of the lease payments, $88,707

The equipment reverts back to the lessor at the end of the lease term.

How much is interest expense on the lease for the first year?
Select one:
a. $5,472
b. $2,736
c. $5,322
d. $1,331
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