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What is the amount that fbi will record for interest expense

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Question - On January 1, 20X6, Funny Bones Inc (FBI) entered into a lease agreement contract that entitled it to use equipment. Details of the contract follow:

Lease payment, not including non-lease component $7,000

Non-lease component (maintenance agreement) $500

Implicit rate in the lease (readily determinable by lessee) 7%

Incremental borrowing rate 9%

Lease term 3 years

Economic life of equipment 6 years

Guaranteed residual value $5,000

Expected pay-out on residual value guarantee $3,000

Option to purchase $1,000

Fair value of equipment at end of lease term $8,000

First annual payment due Jan 1, 20X6

FBI accounts for the lease and non-lease components in the contract as separate lease components. What is the amount that FBI will record for interest expense for its year-ended December 31, 20X6?

Reference no: EM133140315

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