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: Effective Decrease in Outstanding Jan. 1 Payments Interest Balance Balance 236,474 2021 26,000 26,000 210,474 2022 26,000 22,100 3,900 206,574 2023 26,000 21,690 4,310 202,264 2024 26,000 21,238 4,762 197,502 2025 26,000 20,738 5,262 192,240 2026 26,000 20,185 5,815 186,425 2027 26,000 19,575 6,425 179,999 - - - - - - - - - - - - 2038 26,000 6,730 19,270 44,823 2039 26,000 4,706 21,294 23,529 2040 26,000 2,471 23,529 0 Required: 1.What is Majestic’s lease liability after the first lease payment?? 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? Lease liability ________________ ______ Right-of-use ________________ ______ Lease term _________________ years Effective annual interest rate _________________ % Total of lease payments _________________ _____ Total effective interest expense __________________ ______
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:
Effective Decrease in Outstanding
Jan. 1 Payments Interest Balance Balance
236,474
2021 26,000 26,000 210,474
2022 26,000 22,100 3,900 206,574
2023 26,000 21,690 4,310 202,264
2024 26,000 21,238 4,762 197,502
2025 26,000 20,738 5,262 192,240
2026 26,000 20,185 5,815 186,425
2027 26,000 19,575 6,425 179,999
- - - - -
- - - - -
- - - - -
2038 26,000 6,730 19,270 44,823
2039 26,000 4,706 21,294 23,529
2040 26,000 2,471 23,529 0
Required:
1.What is Majestic’s lease liability after the first lease payment??
- 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?
- Lease liability ________________ ______
- Right-of-use ________________ ______
- Lease term _________________ years
- Effective annual interest rate _________________ %
- Total of lease payments _________________ _____
- Total effective interest expense __________________ ______
Lease :
A lease is a legal agreement that stipulates that the owner will receive cash in return for allowing you to use a certain object. Typical leasable assets include real estate, construction projects, and vehicles. In addition, businesses and industries can lease equipment. A lease is, at its most basic level, a legal agreement between the lessor and the lessee.
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