Exhibit 21-1 On January 1, 2010, Victor Company signed a lease agreement requiring six annual payments of $60, 000, beginning December 31, 2010.The lease qualifies as a capital lease.Victor's incremental borrowing rate was 9% and the lessor's implicit rate, known by Victor, was 10%.The present value factors of an ordinary annuity of $1 for six periods for interest rates of 9% and 10% are 4.485919 and 4.355261, respectively.
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Refer to Exhibit 21-1.The interest expense for 2010 would be (round answers to the nearest dollar)
A)$21, 003
B)$22, 746
C)$24, 225
D)$26, 133

Question

Quizplus · Accepted Answer

The present value of the lease payments is calculated using the lessor's implicit rate of 10%: $60,000 * 4.355261 = $261,316. The interest expense for 2010 is the present value multiplied by the implicit rate: $261,316 * 10% = $26,132.60, rounded to $26,133.

Exhibit 21-1 on January 1, 2010, Victor Company Signed a Lease