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:

Effective Decrease in Outstanding

Jan. 1 Payments Interest Balance Balance

220,076

2018 23,500 23,500 196,576

2018 23,500 19,658 3,842 192,734

2019 23,500 19,273 4,227 188,507

2020 23,500 18,851 4,649 183,858

2021 23,500 18,386 5,114 178,743

2022 23,500 17,874 5,626 173,118

2023 23,500 17,312 6,188 166,930

2035 23,500 5,844 17,656 40,787

2036 23,500 4,079 19,421 21,366

2037 23,500 2,137 21,366 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?

1. Lease liability _____

2. Right-of-use asset _____

3. Lease term _____Years

4. Effective annual interest rate _____ %

5. Total of lease payments ______

6. Total effective interest expense____