Lessee's Interest Expense
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On January 1, 2004, Zale, Inc. signed a ten-year lease with annual lease payments of $90,000 starting at the beginning of the lease term, and title passing to Zale at the expiration of the lease. The leased property has an estimated useful life of 11 years, with no salvage value. The lessee's incremental borrowing rate was 13.7%%. The fair value of equipment at beginning of the lease term was $600,000. Lessee does not guarantee residual value. How much interest expense should the lessee recognize in the first year of the lease.
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Solution Summary
The solution calculates how much interest expense should the lessee recognize in the first year of the lease.
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1. Compute for the present value of the annual lease payment = 90,000 + ...
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