On January 1, 2010, Rachel Company Leased Equipment by Signing

Multiple Choice

On January 1, 2010, Rachel Company leased equipment by signing a five-year lease that required five payments of $30, 000 due on December 31 of each year.The equipment remains the property of the lessor at the end of the lease, and Rachel does not guarantee any residual value.Using a rate of 7%, Rachel capitalized the lease on January 1, 2010, in the amount of $123, 006.What is the amount of interest expense Rachel should report on its 2011 income statement?

A) $ 8, 610
B) $ 7, 113
C) $21, 390
D) $22, 887