On January 1, 2008, Shak, Inc. signed a noncancelable lease for a sneaker shinin

Question

On January 1, 2008, Shak, Inc. signed a noncancelable lease for a sneaker shining machine. The ma-chine has an estimated useful life of nine years. The term of the lease is a six-year term with titlepassing to Shak at the end of the lease. The agreement called for annual payments of $40,000 startingat the end of the first year. Assume aggregate lease payments were determined to have a present valueof $200,000, based on implicit interest of 12 percent. What amount of interest expense should Shak re-port in its 2008 income statement from this lease transaction?a.$0b.$16,000c.$24,000d.$33,333

Explanation / Answer

On January 1, 2008, Shak, Inc. signed a noncancelable lease for a sneaker shinin

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