Exhibit 20-2
On January 1, 2016, Mary Company leased equipment, signing a five-year lease that requires annual lease payments of $20,000. The lease qualifies as a capital lease. The payments are made at year-end, and the first payment will be made at December 31, 2016. In addition, Mary guarantees the residual value to be $8,000 at the end of the lease term. Mary correctly uses the lessor's implicit interest rate, which is 12%. The present value factors for five periods at 12% are as follows:
-Refer to Exhibit 20-2. What is the interest expense associated with the lease obligation for the year ending December 31, 2017? Round answers to the nearest dollar.)

Question

Exhibit 20-2
On January 1, 2016, Mary Company leased equipment, signing a five-year lease that requires annual lease payments of $20,000. The lease qualifies as a capital lease. The payments are made at year-end, and the first payment will be made at December 31, 2016. In addition, Mary guarantees the residual value to be $8,000 at the end of the lease term. Mary correctly uses the lessor's implicit interest rate, which is 12%. The present value factors for five periods at 12% are as follows: 
-Refer to Exhibit 20-2. What is the interest expense associated with the lease obligation for the year ending December 31, 2017? Round answers to the nearest dollar.)

Quizplus · Accepted Answer

The interest expense for a lease obligation is calculated by applying the interest rate to the outstanding lease obligation at the beginning of the period. Without the specific details from Exhibit 20-2, the correct answer cannot be determined directly from the provided information. However, based on the selection, the interest expense associated with the lease obligation for the year ending December 31, 2017, is $7,900. This would typically involve calculating the interest on the lease liability at the beginning of the year using the lease's interest rate.

Exhibit 20-2 on January 1, 2016, Mary Company Leased Equipment, Signing a Signing