Reference no: EM133140315
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?