On January 1, 20X6, Funny Bones Inc (FBI) entered into a lease agreement contract that entitled it
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On January 1, 20X6, Funny Bones Inc (FBI) entered into a lease agreement contract that entitled it to use equipment. Details of the contract follow: | |
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Lease payment, not including non-lease component | $7,000 |
Non-lease component (maintenance agreement) | $500 |
Implicit rate in the lease (readily determinable by lessee) | 7% |
Incremental borrowing rate | 9% |
Lease term | 3 years |
Economic life of equipment | 6 years |
Guaranteed residual value | $5,000 |
Expected pay-out on residual value guarantee | $3,000 |
Option to purchase | $1,000 |
Fair value of equipment at end of lease term | $8,000 |
First annual payment due | Jan 1, 20X6 |
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FBI accounts for the lease and non-lease components in the contract as separate lease components. What is the amount that FBI will record for interest expense for its year-ended December 31, 20X6? |
Related Book For
Accounting concepts and applications
ISBN: 978-0538745482
11th Edition
Authors: Albrecht Stice, Stice Swain
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