Question

Titanic Corporation leased executive limousines under terms of $20,000 to be paid at the inception of the lease, and four equal annual payments of $30,000 to each be paid thereafter 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

the interest expense for the first year is $10,238

Step-by-step explanation:

The computation of the first year interest expense is shown below:

= Four equal annual payment × PVA factor of 4 years at 11% × interest rate implicit in the lease

= $30,000 ×3.10245 × 11%

= $10,238

Hence, the interest expense for the first year is $10,238

We simply applied the above formula so that the correct value could come

And, the same is to be considered