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    __________________   ______

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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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??    

  1. 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?

 

 

  1. Lease liability                             ________________      ______
  2. Right-of-use                               ________________      ______
  3. Lease term                                 _________________    years
  4. Effective annual interest rate       _________________       %
  5. Total of lease payments              _________________     _____
  6. Total effective interest expense    __________________   ______
Expert Solution
Step 1

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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