StatMed Corporation leases medical equipment under a five year 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 13%.The first year's interest expense will be ________.

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The first payment of $25,000 is made at the inception, so it does not include any interest. The remaining lease liability is $100,000 ($125,000 total payments - $25,000 initial payment). The first year's interest expense is calculated on this remaining liability: $100,000 * 13% = $13,000. However, since the first payment reduces the principal, the interest for the first year is calculated on the remaining balance after the first payment, which is $100,000 - $25,000 = $75,000. Therefore, the interest expense is $75,000 * 13% = $9,750, which is approximately $9,667 when rounded to the nearest dollar.

StatMed Corporation Leases Medical Equipment Under a Five Year Lease