The following information relates to a lease between Canneries Limited (lessor)and Fruiterers Limited (lessee).3 lease payments of $20 000 each are made annually in advance and a final lease payment of $15 000 is made at the end of the 3 year lease term.The implicit interest rate is 10%.The amount of the interest expense that is recognised when the second payment of the lease is paid is:
A)$4598.
B)$6598.
C)$7500.
D)$15 402.

Question

Quizplus · Accepted Answer

The interest expense for the second payment is calculated on the outstanding lease liability after the first payment. The first payment reduces the principal, and interest is then calculated on the remaining balance at 10%.

The Following Information Relates to a Lease Between Canneries Limited