Question
Bruce and Haiwen started a company together in Montreal. Recently, they got into some arguments with the accounting of their car in the company. They
Bruce and Haiwen started a company together in Montreal. Recently, they got into some arguments with the accounting of their car in the company. They purchased a Ghibli on June 25, 2019 at a price of $80,000. The car is expected to have a physical life of 10 years, after which the residual value would be zero. However, they only intend to use the car for 4 years, after which they would be selling the car at an estimated price of $13,000 and relocating to the lovely Toronto in Canada.
Since they had the Ghibli, they had been fighting nonstop on who to drive the car. As a result, they decided to go for a second car on January 1, 2020 such that it would not hurt their BFF relationship. They leased a Boxster for four years with payment of $18,000 per year due at the end of each lease year. Assume a lease discount rate of 10% and they elect to account the lease as a finance lease. Also assume the fair value of the new car is the same as the present value of lease payments. Calculate interest expense (to the nearest cents) for each of the four years of the lease from 2020 to 2023.
2020:
2021:
2022:
2023:
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