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 | ||||
302,898 | ||||||||
2021 | 29,500 | 29,500 | 273,398 | |||||
2022 | 29,500 | 23,239 | 6,261 | 267,137 | ||||
2023 | 29,500 | 22,707 | 6,793 | 260,344 | ||||
2024 | 29,500 | 22,129 | 7,371 | 252,973 | ||||
2025 | 29,500 | 21,503 | 7,997 | 244,976 | ||||
2026 | 29,500 | 20,823 | 8,677 | 236,298 | ||||
2027 | 29,500 | 20,085 | 9,415 | 226,884 | ||||
2038 | 29,500 | 6,404 | 23,096 | 52,249 | ||||
2039 | 29,500 | 4,441 | 25,059 | 27,190 | ||||
2040 | 29,500 | 2,311 | 27,189 | 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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