Technoid Inc. sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2006. The manufacturing cost of the computers was $12 million. This non-cancelable lease had the following terms: Lease payments: $2,466,754 at the beginning of each 6 mo. period, with the first payment being made at 1/1/06. Lease term: 5 years (10 semi-annual payments) No residual value; no bargain purchase option Economic life of equipment: 5 years Implicit interest rate and lessee's incremental borrowing rate: 5% semi-annually. Fair value of the computers at 1/1/06: $20 million. What is the interest expense that Lone Star would report on this lease in its 2006 income statement?© BrainMass Inc. brainmass.com March 4, 2021, 10:11 pm ad1c9bdddf
Since the lease payments are made semi annually we need to calculate interest for each semi annual payment as carrying value of lease X semi annual rate
The carrying value of lease at the start of lease is the ...
The solution explains how to calculate the interest expense in relation to lease payments. The total cost are determined.