Interest expense recognized for first year (beginning period)

CFA Level I
#1

CFA 2017 Level 1 Schweser Notes, Financial Reporting and Analysis, page 302:

(Question and answer removed by admin)

Why is not the interest expense for the first year $43,121 x 8% = $3,450? What they suggest is the interest expense for the second year to me.

#2

Draw a timeline. Note that the first payment is made the day the lease starts, so there is never an outstanding balance of $43,121. For the entire first year, the outstanding balance is $33,121.

#3

Ok but then the amount of $2,650 is an amount of interest recognized in 20X7, not 20X6, isn’t it?

#4

No.

Accrual accounting.