Question
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
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 Leasings lease amortization schedule appear below:
Jan. 1 | Payments | Effective Interest | Decrease in Balance | Outstanding Balance | ||||
210,711 | ||||||||
2018 | 22,500 | 22,500 | 188,211 | |||||
2018 | 22,500 | 18,821 | 3,679 | 184,532 | ||||
2019 | 22,500 | 18,453 | 4,047 | 180,485 | ||||
2020 | 22,500 | 18,049 | 4,451 | 176,034 | ||||
2021 | 22,500 | 17,603 | 4,897 | 171,137 | ||||
2022 | 22,500 | 17,114 | 5,386 | 165,751 | ||||
2023 | 22,500 | 16,575 | 5,925 | 159,826 | ||||
2035 | 22,500 | 5,596 | 16,904 | 39,051 | ||||
2036 | 22,500 | 3,905 | 18,595 | 20,456 | ||||
2037 | 22,500 | 2,046 | 20,456 | 0 | ||||
Required:
1. What is Majestics 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? (Round your percentage answers to 1 decimal place.) 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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