For a lessee, capital lease interest expense should be equal to: Discount Rate x Leasehold Asset or Discount Rate x Leasehold Liability Either way???
Discount Rate x Leasehold Liability. The asset has nothing to do with interest… PV of lease is booked as asset and amortized over life.
Isn’t the leasehold liability the same amount as PV(Lease PMT)?
Yes and No Yes: In the very beginning at T=0 and at the very end when Leasehold liability = 0 No: Every other time.
Hmm, so to be a bit more precise, capital lease interest expense should be equal to Discount Rate x Current Leasehold Value? Given the following info. Possible to calculate the 2nd year interest expense? Thx. A firm has just signed 5-yr lease on a new machine Lease PMT $20,000/yr payable at the end of the yr No salvage value till the end of the lease Machine has a 5-yr useful life The firm’s incremental borrowing cost is 11% Lessor’s implicit rate is 10% Lease is a capital lease.