Reference no: EM132763095
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?
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