Question - On January 1, 2016, Mary Company leased equipment, signing a five-year lease that requires annual lease payments of $20,000. The lease qualifies as a capital lease. The payments are made at year-end, and the first payment will be made at December 31, 2016. In addition, Mary guarantees the residual value to be $8,000 at the end of the lease term. Mary correctly uses the lessor's implicit interest rate, which is 12%. The present value factors for five periods at 12% are as follows:
Present value of $10.567427
Present value of ordinary annuity of $13.604776
What is the amount of interest expense associated with the leased equipment for the year ending December 31, 2016?
$2,400
$9,196
$8,651
$20,000