1/1/2010 $18,000 5 7 $75,000 $85,000 The following facts pertain to a noncancelable lease between JK Co. and Lessor Inc. Inception date Annual lease payment due each January 1, beginning with January 1, 2010 (excluding executory costs) Lease term (years) Economic life of equipment (years) Book value (equal to cost) of the equipment to lessor Fair value of the equipment on January 1, 2010 Expected residual value of equipment at end of lease tem (guaranteed by JK) Lessee's incremental borrowing rate Lessor's implicit interest rate Annual executory costs are paid by lessee at the beginning of year The equipment reverts back to lessor at the end of the lease term. JK has never had any problems paying its bills as they come due. Lessor provides no ongoing services under the lease. Use straight-line method for depreciation $8,000 10% 12% $2,000 The reported interest expense related to this lease transaction on lessee's 2011 income statement should be $5,765 $5,524 $5,023 $5,633