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 | ||||
268,653 | ||||||||
2021 | 27,000 | 27,000 | 241,653 | |||||
2022 | 27,000 | 21,749 | 5,251 | 236,402 | ||||
2023 | 27,000 | 21,276 | 5,724 | 230,678 | ||||
2024 | 27,000 | 20,761 | 6,239 | 224,439 | ||||
2025 | 27,000 | 20,230 | 6,800 | 217,639 | ||||
2026 | 27,000 | 13,691 | 13,309 | 204,330 | ||||
2027 | 27,000 | 12,493 | 14,507 | 189,823 | ||||
2038 | 27,000 | 6,151 | 20,849 | 47,496 | ||||
2039 | 27,000 | 4,275 | 22,725 | 24,771 | ||||
2040 | 27,000 | 2,229 | 24,771 | 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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