Reference no: EM132380902
Question
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 Leasing's lease amortization schedule appear below:
Jan. 1 Payments Effective Interest Decrease in Balance Outstanding Balance
233,828
2018 23,500 0 23,500 210,328
2018 23,500 18,930 4,570 205,758
2019 23,500 18,518 4,982 200,776
2020 23,500 18,070 5,430 195,346
2021 23,500 17,581 5,919 189,427
2022 23,500 13,691 9,809 179,618
2023 23,500 12,808 10,692 168,926
------- --------- ------------- ------------ -----------
2035 23,500 5,354 18,146 41,339
2036 23,500 3,721 19,779 21,560
2037 23,500 1,940 21,560 0
Required:
1. What is Majestic's 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?