Ramsey Company leases heavy equipment to Terrell Inc. on March 1, 2019, on the following terms:

1.	Twenty-four lease rentals of $2,950 at the beginning of each month are to be paid by Terrell, and the lease is noncancelable.
2.	The cost of the heavy equipment to Ramsey was $55,000.
3.	Ramsey uses an implicit interest rate of 18% per year and will account for this lease as a sales-type lease.

Required:

Prepare journal entries for Ramsey (the lessor) to record the lease contract on March 1, 2019, the receipt of the first two lease rentals, and any interest income for March and April 2019.

ANSWER:

PV of lease payments received = Monthly lease payment x PV factor for 24 receipts at 1.5%

= $2,950 x 20.330861

= $59,976

2019

Mar. 1 Lease Receivable ................................................................ 59,976

Sales Revenue ............................................................... 59,976

Cost of Goods Sold ............................................................. 55,000

Equipment Leased to Others ...................................... 55,000

Mar. 1 Cash ...................................................................................... 2,950

Lease Receivable ......................................................... 2,950

Mar. 31 Lease Receivable ................................................................ 855

Interest Income ............................................................. 855*

*($59,976 $2,950) x 1.5%

Apr. 1 Cash ............................................................... 2,950

Lease Receivable ......................................................... 2,950

Lease Receivable ................................................................ 824

Interest Income ............................................................. 824*

*($59,976 $2,950 + $855 $2,950) x 1.5%

I already know the answer but I dont understand why they use 1.5% interest rate when the problem says it has a 18% implicit interest rate. Please explain how they got this answer please!!