Question

1 Problem 15-3 (Static) Lease amortization schedule (LO15-2] 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 Leasing's lease amortization schedule appear below: 2.22 points Effective Interest Jan. 1 Payments eBook 2021 2022 2023 2024 2025 2026 2027 20,000 20,000 20,000 20,000 20,000 20,000 20,000 16,730 16,403 16,043 15,647 15,212 14,733 Decrease in Outstanding Balance Balance 187,298 20,000 167,298 3,270 164,028 3,597 160,431 3,957 156,474 4,353 152,121 4,788 147,333 5,267 142,066 Print References 2038 2039 2040 20,000 20,000 20,000 4,974 3,471 1,818 15,026 16,529 18,182 34,711 18,182 © Required: 1. What is Majestic's 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? 5. What is the total amount of lease payments? 6. What is the total effective interest expense recorded over the term of the lease? 1 2 3. Lease liability Right-of-use asset Lease term Effective annual interest rate Total of lease payments Total effective interest expense 20 years 100% 4 5. 6.

Answer 1

1 Lease Liability = $ 187298-20000 = $ 167298 $ 1,67,298 2 Right of use asset = Beginning outstanding balance = $ 187298 $ 1,87,298 3 Lease Term is 20 years 20 Years 4 Effective annual interest rate = $16730/167298 = 10.0% 10 % 5 Total of lease payments = $20000*20 = $400,000 $ 4,00,000 Total effective Interest Expense = Total of lease payments - beginning 6 outstanding balance = $400,000 - $187298 = $212702 $ 2,12,702 Kindly Comment down for any clarifications/ queries and please upvote.