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: Jan. 1 Payments Effective Interest Decrease in Balance Outstanding Balance 291,599 2021 27,500 27,500 264,099 2022 27,500 21,128 6,372 257,727 2023 27,500 20,618 6,882 250,845 2024 27,500 20,068 7,432 243,413 2025 27,500 19,473 8,027 235,386 2026 27,500 18,831 8,669 226,717 2027 27,500 18,137 9,363 217,354 — — — — — — — — — — — — — — — 2038 27,500 5,670 21,830 49,040 2039 27,500 3,923 23,577 25,463 2040 27,500 2,037 25,463 0 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? (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?
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:
| Jan. 1 | Payments | Effective Interest | Decrease in Balance | Outstanding Balance | ||||
| 291,599 | ||||||||
| 2021 | 27,500 | 27,500 | 264,099 | |||||
| 2022 | 27,500 | 21,128 | 6,372 | 257,727 | ||||
| 2023 | 27,500 | 20,618 | 6,882 | 250,845 | ||||
| 2024 | 27,500 | 20,068 | 7,432 | 243,413 | ||||
| 2025 | 27,500 | 19,473 | 8,027 | 235,386 | ||||
| 2026 | 27,500 | 18,831 | 8,669 | 226,717 | ||||
| 2027 | 27,500 | 18,137 | 9,363 | 217,354 | ||||
| — | — | — | — | — | ||||
| — | — | — | — | — | ||||
| — | — | — | — | — | ||||
| 2038 | 27,500 | 5,670 | 21,830 | 49,040 | ||||
| 2039 | 27,500 | 3,923 | 23,577 | 25,463 | ||||
| 2040 | 27,500 | 2,037 | 25,463 | 0 | ||||
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? (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?
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:
| Jan. 1 | Payments | Effective Interest | Decrease in Balance | Outstanding Balance | ||||
| 291,599 | ||||||||
| 2021 | 27,500 | 27,500 | 264,099 | |||||
| 2022 | 27,500 | 21,128 | 6,372 | 257,727 | ||||
| 2023 | 27,500 | 20,618 | 6,882 | 250,845 | ||||
| 2024 | 27,500 | 20,068 | 7,432 | 243,413 | ||||
| 2025 | 27,500 | 19,473 | 8,027 | 235,386 | ||||
| 2026 | 27,500 | 18,831 | 8,669 | 226,717 | ||||
| 2027 | 27,500 | 18,137 | 9,363 | 217,354 | ||||
| — | — | — | — | — | ||||
| — | — | — | — | — | ||||
| — | — | — | — | — | ||||
| 2038 | 27,500 | 5,670 | 21,830 | 49,040 | ||||
| 2039 | 27,500 | 3,923 | 23,577 | 25,463 | ||||
| 2040 | 27,500 | 2,037 | 25,463 | 0 | ||||
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? (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?
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:
| Jan. 1 | Payments | Effective Interest | Decrease in Balance | Outstanding Balance | ||||
| 291,599 | ||||||||
| 2021 | 27,500 | 27,500 | 264,099 | |||||
| 2022 | 27,500 | 21,128 | 6,372 | 257,727 | ||||
| 2023 | 27,500 | 20,618 | 6,882 | 250,845 | ||||
| 2024 | 27,500 | 20,068 | 7,432 | 243,413 | ||||
| 2025 | 27,500 | 19,473 | 8,027 | 235,386 | ||||
| 2026 | 27,500 | 18,831 | 8,669 | 226,717 | ||||
| 2027 | 27,500 | 18,137 | 9,363 | 217,354 | ||||
| — | — | — | — | — | ||||
| — | — | — | — | — | ||||
| — | — | — | — | — | ||||
| 2038 | 27,500 | 5,670 | 21,830 | 49,040 | ||||
| 2039 | 27,500 | 3,923 | 23,577 | 25,463 | ||||
| 2040 | 27,500 | 2,037 | 25,463 | 0 | ||||
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? (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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