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Hatfield Corporation leases a tractor from Star Leasing with a five-year non-cancelable lease on January 1, 2018 under the following terms. Hatfield accounts for leases
Hatfield Corporation leases a tractor from Star Leasing with a five-year non-cancelable lease on January 1, 2018 under the following terms. Hatfield accounts for leases under ASC 840 guidance.
- Five payments of $26,379.74 (a 9% implicit rate) due at the end each year.
- The fair value of the tractor is $100,000.
- The lease is nonrenewable and the tractor reverts to Star at the end of the lease term.
- The tractor has a six-year economic life.
- Hatfield has an excellent credit rating.
- Star offers no warranty on the tractor other than the manufacturers two-year warranty that is handled directly with the manufacturer.
If Hatfields incremental borrowing rate is 11% and the implicit rate is not known to the lessee, what interest rate will Hatfield use to account for this lease?
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