Question

Company Inc. enters into a 10-year finance lease at the beginning of 2021 for a total of $250,000. The annual lease payment is $25,000 (payable at the end of each year) and the rate implicit in the lease is 5%. No initial direct costs are incurred. How much interest expense should be recognized in 2021

Answer 1

Answer:

$9,652.17

Explanation:

Rate = 5%

Yield = 10 years

Payment = -25,000

Using the Excel to find the value

Value = PV(5%,10,-25000)

Value = $193,043.374

Interest expense should be recognized in 2021 = $193,043.374*5%

Interest expense should be recognized in 2021 = $9652.1687

Interest expense should be recognized in 2021 = $9,652.17