what amount of interest expense should Lenoir report for Year Two? (Round to the nearest dollar.) $4,089

On January 1, Year One, the Lenoir Company leases equipment from Burke Corporation for eight years which is the entire life of the asset. It will be discarded at the end of that period. For Burke, this transaction is a direct financing leases using an implicit interest rate of 10 percent. Based on that rate, the annual payments are $12,000 beginning immediately. Lenoir is unaware of Burke’s implicit but has an incremental borrowing rate of 8 percent. Assume that the present value of an ordinary annuity for eight years at an annual interest rate of 8 percent is 5.75 and at 10 percent is 5.33 whereas the present value of an annuity due for eight years at an annual interest rate of 8 percent is 6.21 and at 10 percent is 5.87. If the effective rate method is applied, what amount of interest expense should Lenoir report for Year Two? (Round to the nearest dollar.)
$4,089
$4,442
$4,516
$5,070

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