Problem 15-3 Lease amortization schedule [LO15-2]

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:

Jan. 1	Payments		Effective Interest		Decrease in Balance		Outstanding Balance
2018							280,948
2018	30,000				30,000		250,948
2019	30,000		25,095		4,905		246,043
2020	30,000		24,604		5,396		240,647
2021	30,000		24,065		5,935		234,712
2022	30,000		23,471		6,529		228,183
2023	30,000		22,818		7,182		221,001
2024	30,000		22,100		7,900		213,101
2035	30,000		7,461		22,539		52,068
2036	30,000		5,207		24,793		27,275
2037	30,000		2,727		27,275		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?