CFA 2017 Level 1 Schweser Notes, Financial Reporting and Analysis, page 302:
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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.
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.
Ok but then the amount of $2,650 is an amount of interest recognized in 20X7, not 20X6, isn’t it?
No.
Accrual accounting.