Use the present value and future value tables included in Appendix 8 and on the textbook companion website.
-On January 1, Cromwell Corp. leased a mainframe computer from Fairview Company for $42,000 per year (payable on each December 31) for 10 years. The lease is a capital lease, and the current market rate of interest is 12 percent. The market value of the computer is $237,300, which is equal to its discounted present value at 12 percent. Given this data, interest expense on the lease for the first year is

Question

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-On January 1, Cromwell Corp. leased a mainframe computer from Fairview Company for $42,000 per year (payable on each December 31) for 10 years. The lease is a capital lease, and the current market rate of interest is 12 percent. The market value of the computer is $237,300, which is equal to its discounted present value at 12 percent. Given this data, interest expense on the lease for the first year is

Quizplus · Accepted Answer

To calculate the interest expense on the lease for the first year, we need to find the interest portion of the yearly lease payment. Using the present value table, we can find the present value of the lease payments, which is $237,300. Therefore, the interest portion of the first lease payment can be calculated as follows:

Interest expense = Present value of lease payments x Interest rate
Interest expense = $237,300 x 0.12
Interest expense = $28,476

Therefore, the correct answer is choice B.

Use the Present Value and Future Value Tables Included in Appendix