Example 11, Chapter 22

Hi From what I understand about financing leases is that they are simply the interest expense and the depreciation expense (from i/s point of view) However, I don’t understand how in example 11 part 1, the interest is calculate as 100,000- (lease payment) 28,679 = 71,321 x 10% does anyone know why we aren’t just calculating 10% X 100,000?

This is Level I stuff. Depreciation on the asset is removed. Carrying value is down to 71321 in Year 2.

It’s Level II stuff this year. And for those of us who are re-takers, much of this has been forgotten (or thrown out with the Level I stuff).

This lease requires payment of 28,679 at start of lease. Therefore, we start with a liability of 71,321