Question
On January 1, 2021, Majestic Mantles leased a lathe from Equipment Leasing under a finance lease. Lease payments are made annually. Title does not transfer
On January 1, 2021, 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 | ||||
| 236,474 | ||||||||
| 2021 | 26,000 | 26,000 | 210,474 | |||||
| 2022 | 26,000 | 22,100 | 3,900 | 206,574 | ||||
| 2023 | 26,000 | 21,690 | 4,310 | 202,264 | ||||
| 2024 | 26,000 | 21,238 | 4,762 | 197,502 | ||||
| 2025 | 26,000 | 20,738 | 5,262 | 192,240 | ||||
| 2026 | 26,000 | 20,185 | 5,815 | 186,425 | ||||
| 2027 | 26,000 | 19,575 | 6,425 | 179,999 | ||||
| 2038 | 26,000 | 6,730 | 19,270 | 44,823 | ||||
| 2039 | 26,000 | 4,706 | 21,294 | 23,529 | ||||
| 2040 | 26,000 | 2,471 | 23,529 | 0 | ||||
Required: 1. What is Majestics lease liability after the first lease 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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Financial and Managerial Accounting
Authors: Jonathan E. Duchac, James M. Reeve, Carl S. Warren
11th Edition
9780538480901, 9781111525774, 538480890, 538480904, 1111525773, 978-0538480895
