On January 1, 2021, National Insulation Corporation (NIC) leased equipment from United 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 NIC. Portions of the United Leasing’s lease amortization schedule appear below: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Jan. 1 Payments Effective Interest Decrease in Balance Outstanding Balance 2021 224,997 2021 17,500 17,500 207,497 2022 17,500 12,450 5,050 202,447 2023 17,500 12,147 5,353 197,094 2024 17,500 11,826 5,674 191,420 2025 17,500 11,485 6,015 185,405 2026 17,500 11,124 6,376 179,029 — — — — — — — — — — — — — — — 2038 17,500 4,671 12,829 65,017 2039 17,500 3,901 13,599 51,418 2040 17,500 3,085 14,415 37,003 2041 39,223 2,220 37,003 0 Required: 1. What is the lease term in years? 2. What is the asset’s residual value expected at the end of the lease term? (Round your answers to nearest whole dollar.) 3. What is the effective annual interest rate? (Round your percentage answer to 1 decimal place.)
On January 1, 2021, National Insulation Corporation (NIC) leased equipment from United 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 NIC. Portions of the United Leasing’s lease amortization schedule appear below: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
| Jan. 1 | Payments | Effective Interest | Decrease in Balance | Outstanding Balance | ||||
| 2021 | 224,997 | |||||||
| 2021 | 17,500 | 17,500 | 207,497 | |||||
| 2022 | 17,500 | 12,450 | 5,050 | 202,447 | ||||
| 2023 | 17,500 | 12,147 | 5,353 | 197,094 | ||||
| 2024 | 17,500 | 11,826 | 5,674 | 191,420 | ||||
| 2025 | 17,500 | 11,485 | 6,015 | 185,405 | ||||
| 2026 | 17,500 | 11,124 | 6,376 | 179,029 | ||||
| — | — | — | — | — | ||||
| — | — | — | — | — | ||||
| — | — | — | — | — | ||||
| 2038 | 17,500 | 4,671 | 12,829 | 65,017 | ||||
| 2039 | 17,500 | 3,901 | 13,599 | 51,418 | ||||
| 2040 | 17,500 | 3,085 | 14,415 | 37,003 | ||||
| 2041 | 39,223 | 2,220 | 37,003 | 0 | ||||
Required:
1. What is the lease term in years?
2. What is the asset’s residual value expected at the end of the lease term? (Round your answers to nearest whole dollar.)
3. What is the effective annual interest rate? (Round your percentage answer to 1 decimal place.)
4. What is the total amount of lease payments for United? (Round your answers to nearest whole dollar.)
5. What is the total amount of lease payments for NIC? (Round your answers to nearest whole dollar.)
6. What is United’s net investment at the beginning of the lease (after the first payment)? (Round your answers to nearest whole dollar.)
7. What is United’s total effective interest revenue recorded over the term of the lease? (Round your answers to nearest whole dollar.)
8. What amount would NIC record as a right-of-use asset at the beginning of the lease? (Round your answers to nearest whole dollar.)
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