You are currently reviewing the following information for JKL Corp.:
Starting date of lease: Jan 1st, 2002
Annual year-end lease payments: $32,000
Term of Lease: 5 years
Buy-back value at end of term: $55,000
Interest rate implicit on lease: 11%
Interest rate on company’s general debt: 13%
If the company uses the capitalized lease method of accounting, what would be the interest expense during the second year of the inception of the lease?
(Of course, here you really need only the first row of the table to get the balance at the end of year 1, then compute the interest on that. Nevertheless, it’s still a table.)
Aside from building the table, couldn’t you just use the financial calculator to scroll through the amortization table to the second payment? I got the same answer doing this, and by finding the PV of the lease with 4 years remaining, then calculating interest off of the PV at the end of the first year (beginning second year).
FV= 55000
PMT= 32000
PV=?
I= 11%
N=4
—> PV*.11= interest in year 2
-OR-
Use the same inputs, except N=5, then use the amortization table for period 2.
Yes you could definitely do either of those things as opposed to making a table. I used the amortization function in the financial calculator. It really pays to know how to use that thing.
I took a real estate course and a financial statement analysis course, both of which helped me figure out these tricks from similar problem types. Glad I could help!