StatMed Corporation leases medical equipment under a five-year capital lease. The terms of the lease call for five equal payments of $25,000, with the first payment due at the inception. The interest rate implicit in the lease is 8%. The first year's interest expense will be ________. (Do not round interim calculations and round your final answer to the nearest whole dollar.)

Question

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The first payment reduces the principal, so the interest for the first year is calculated on the remaining balance. The initial lease liability is $100,000 ($25,000 x 5). After the first payment, the balance is $75,000. The interest expense for the first year is $75,000 x 8% = $6,624.

StatMed Corporation Leases Medical Equipment Under a Five-Year Capital Lease