On January 1, 2024, 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?

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Jan. 1 2024 2025 2026 2027 2028 2029 2030 2041 2042 2043 Payments 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 Effective Interest 16,730 16,403 16,043 15,647 15,212 14,733 - 4,974 3,471 1,818 Decrease in Balance 20,000 3,270 3,597 3,957 4,353 4,788 5,267 15,026 16,529 18,182 Outstanding Balance 187,298 167,298 164,028 160,431 156,474 152,122 147,334 142,067 34,711 18,182 0