Question
On January 2, 2017, Cambridge Ltd. signed a ten-year non-cancellable lease for a heavy-duty drill press. The lease required annual payments of $35,000, starting December
On January 2, 2017, Cambridge Ltd. signed a ten-year non-cancellable lease for a heavy-duty drill press. The lease required annual payments of $35,000, starting December 31, 2017, with title passing to Cambridge at the end of the lease. Cambridge is accounting for this lease as a capital (finance) lease. The drill press has an estimated useful life of 20 years, with no residual value. Cambridge uses straight-line depreciation for all its plant assets. The lease payments were determined to have a present value of $215,000, based on an implicit interest rate of 10%. On their 2017 income statement, how much interest expense should Cambridge report in connection with this lease?
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