Question

Coronado Consulting leased machinery from Island Inc. on July 1, 2021. The lease was recorded as a finance lease. The present value of the lease payments discounted at 9% was $60 million. Ten annual lease payments of $8 million are due each July 1 beginning July 1, 2021. What amount of interest expense from the lease should Coronado report in its December 31, 2021, income statement

Answer 1

the amount of the interest expense is $2,340,000

Step-by-step explanation:

The computation of the amount of the interest expense is shown below:

= (present value of the lease payments - ten annual lease payments) × rate of interest × given time period ÷ total months

= ($60 million - $8 million) × 9% × 6 months ÷ 12 months

= $2,340,000

hence, the amount of the interest expense is $2,340,000