Question

On January 1, 2018, Ivanhoe Corporation signed a 5-year noncancelable lease for equipment. The terms of the lease called for Ivanhoe to make annual payments of $202000 at the beginning of each year for 5 years beginning on January 1, 2018 with the title passing to Ivanhoe at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Ivanhoe uses the straight-line method of depreciation for all of its fixed assets. Ivanhoe accordingly accounts for this lease transaction as a finance lease. The minimum lease payments were determined to have a present value of $842313 at an effective interest rate of 10%. In 2019, Ivanhoe should record interest expense of

Answer: (round to the nearest whole dollar)

Answer 1

Answer:

Account title and explanation	Calculations	Amount($)
Present value of minimum lease payments		842313
Less: Payment made at the beginning of year		202000
Remaining Principal amount outstanding as on December 31, 2018	842313-202000=	640313
Rate of interest		10%
In 2019, Ivanhoe should record interest expense	640313*10%=	64031

Therefore,

Ivanhoe should record interest expense is 64031