Question

Titanic Corporation leased executive limos under terms of $130,000 down and six equal annual payments of $140,000 on the anniversary date of the lease. The interest rate implicit in the lease is 11%. The first year's interest expense would be:

Answer 1

$65,149.70

Step-by-step explanation:

The computation of the interest expense is shown below:

= Equal Annual payments × PVIFA factor for 6 years at 11% × rate of interest

= $140,000 × 4.2305 × 11%

= $65,149.70

Kindly refer to the PVIFA table

By multiplying the equal annual payment with the present value interest factor annuity for six-year at the interest rate 11% and implicit interest rate also i.e 11% so that the first-year interest expense could arrive.