Pisa, Inc.leased equipment from Tower Company under a four-year lease requiring equal annual payments of $86,038, with the first payment due at lease inception.The lease does not transfer ownership, nor is there a bargain purchase option.The equipment has a 4-year useful life and no residual value.Pisa, Inc.'s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Pisa, Inc.) is 8%.Assuming that this lease is properly classified as a finance lease, what is the amount of interest expense recorded by Pisa, Inc.in the first year of the asset's life?

Question

Quizplus · Accepted Answer

The Answer of Pisa, Inc.leased equipment from Tower Company under a four-year lease requiring equal annual payments of $86,038, with the first payment due at lease inception.The lease does not transfer ownership, nor is there a bargain purchase option.The equipment has a 4-year useful life and no residual value.Pisa, Inc.'s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Pisa, Inc.) is 8%.Assuming that this lease is properly classified as a finance lease, what is the amount of interest expense recorded by Pisa, Inc.in the first year of the asset's life?

Pisa, IncLeased Equipment from Tower Company Under a Four-Year Lease Requiring