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What is the amount that NC will record for interest expense

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

Lease payment, including the non-lease component: $60,000

Non-lease component (maintenance agreement) included in lease payment: $4,000

Implicit rate in the lease (readily determinable by lessee): 5%

Incremental borrowing rate: 6%

Lease term: 5 years

Economic life of equipment: 6 years

Guaranteed residual value: $10,000

Expected pay-out on residual value guarantee: $8,000

Option to purchase: No

First annual payment due: Jan. 1, 20X6

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

Reference no: EM132753961

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