Question
On January 1, 2024, National Insulation Corporation (NIC) leased equipment from United Leasing under a finance lease. Lease payments are made annually. Title does not
On January 1, 2024, National Insulation Corporation (NIC) leased equipment from United 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 NIC. Portions of the United Leasings lease amortization schedule appear below:
January 1 | Payments | Effective Interest | Decrease in Balance | Outstanding Balance |
---|---|---|---|---|
2024 | $ 165,141 | |||
2024 | $ 13,000 | $ 13,000 | $ 152,141 | |
2025 | $ 13,000 | $ 9,128 | $ 3,872 | $ 148,269 |
2026 | $ 13,000 | $ 8,896 | $ 4,104 | $ 144,165 |
2027 | $ 13,000 | $ 8,650 | $ 4,350 | $ 139,815 |
2028 | $ 13,000 | $ 8,389 | $ 4,611 | $ 135,204 |
2029 | $ 13,000 | $ 8,112 | $ 4,888 | $ 130,316 |
2041 | $ 13,000 | $ 3,165 | $ 9,835 | $ 42,914 |
2042 | $ 13,000 | $ 2,575 | $ 10,425 | $ 32,489 |
2043 | $ 13,000 | $ 1,949 | $ 11,051 | $ 21,438 |
2044 | $ 22,724 | $ 1,286 | $ 21,438 | $ 0 |
Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
Required:
- What is the lease term in years?
- What is the assets residual value expected at the end of the lease term?
- What is the effective annual interest rate?
Note: Enter your answer as a percent rounded to 1 decimal place.
- What is the total amount of lease payments for United?
- What is the total amount of lease payments for NIC?
- What is Uniteds net investment at the beginning of the lease (after the first payment)?
- What is Uniteds total effective interest revenue recorded over the term of the lease?
- What amount would NIC record as a right-of-use asset at the beginning of the lease?
Note: Round your answers to nearest whole dollar.
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