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On January 2, 2004, Gonzalez, Inc. signed a ten-year noncancelable lease for a heavy duty drill press.
On January 2, 2004, Gonzalez, Inc. signed a ten-year noncancelable lease for a heavy duty drill press. The lease stipulated annual payments of $90,000 starting at the end of the first year, with title passing to Gonzalez at the expiration of the lease. Gonzalez treated this transaction as a capital lease. The drill press has an estimated useful life of 15 years, with no salvage value. Gonzalez uses straight-line depreciation for all of its plant assets. Aggregate lease payments were determined to have a present value of $540,000, based on implicit interest of 10%. In its 2004 income statement, what amount of interest expense should Gonzalez report from this lease transaction?
