On January 1, 2011, Shak, Inc

On January 1, 2011, Shak, Inc. signed a noncancelable lease for a sneaker shining machine. The machine has an estimated useful life of nine years. The term of the lease is a six-year term with title passing to Shak at the end of the lease. The agreement called for annual payments of $40,000 starting at the end of the first year. Assume aggregate lease payments were determined to have a present value of $200,000, based on implicit interest of 12 percent. What amount of interest expense should Shak report in its 2011 income statement from this lease transaction?

A) $0
B) $16,000
C) $24,000
D) $33,333

Correct Answer:

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