Question
On January 1, 20X6, Nellie Corp. (NC) entered into a lease agreement contract that entitled it to use equipment. Details of the contract follow: Lease
On January 1, 20X6, Nellie Corp. (NC) entered into a lease agreement contract that entitled it to use equipment. Details of the contract follow:
Lease payment, including the non-lease component $60,000 Non-lease component (maintenance agreement) included in lease payment $4,000 Implicit rate in the lease (readily determinable by lessee) 5% Incremental borrowing rate 6% Lease term 5 years Economic life of equipment 6 years Guaranteed residual value $10,000 Expected pay-out on residual value guarantee $8,000 Option to purchase No First annual payment due Jan. 1, 20X6 NC accounts for the lease and non-lease components in the contract as separate lease components. What is the amount that NC will record for interest expense for its year-ended December 31, 20X6?
a. $10,951 b. $13,042 c. $10,242 d. $10,320
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