On January 1, 2018, Majestic Mantles leased a lathe from Equipment Leasing under a finance lease. Lease payments are made annually. Title does not transfer to the lessee and there is no purchase option or guarantee of a residual value by Majestic. Portions of the Equipment Leasing's lease amortization schedule appear below:

Required:
1. What is Majestic's lease liability at the beginning of the lease (after the first payment)?
2. What amount would Majestic record as a right-of-use asset?
3. What is the lease term in years?
4. What is the effective annual interest rate?
5. What is the total amount of lease payments?
6. What is the total effective interest expense recorded over the term of the lease?

Transcribed Image Text:

Decrease Outstanding Jan. 1 Payments Balance 187,298 167,298 164,028 2018 20.000 2018 20,000 2019 20,000 2020 20,000 2021 20,000 2022 20.000 2023 20,000 16,730 16,403 16,043 15,647 15,212 14,733 20,000 3,270 3,597 3,957 4.353 156474 4,788 5,267 152,122 147,334 2035 20,000 2036 20,000 037 20,000 4,974 3,471 1,818 15,026 16,529 18,182 34,711 18,182 Ci