On January 1, 2024, 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: January 1 Payments $ 22,000 $ 22,000 $ 22,000 2024 2025 2026 2027 2028 2029 2030 $ 22,000 $ 22,000 $ 22,000 $ 22,000 2041 2042 2043 I $ 22,000 $ 22,000 $ 22,000 Effective Interest 1. Lease liability 2. Right-of-use asset 3. Lease term $ 18,403 $ 18,043 $ 17,647 $ 17,212 $ 16,733 $ 16,207 $ 5,471 $ 3,818 $ 2,000 Decrease in Balance $ 22,000 $ 3,597 $ 3,957 $ 4,353 $ 4,788 $ 5,267 $ 5,793 4. Effective annual interest rate 5. Total of lease payments 6. Total effective interest expense $ 16,529 $ 18,182 $ 20,000 Outstanding Balance $ 206,028 $ 184,028 $ 180,431 $ 176,474 $ 172,121 $ 167,333 $ 162,067 $ 156,273 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? $ 38,181 $ 19,999 $0 4. What is the effective annual interest rate? Note: Round your percentage answer 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? years

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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On January 1, 2024, 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:
January 1 Payments
$ 22,000
$ 22,000
$ 22,000
$ 22,000
$ 22,000
$ 22,000
$ 22,000
2024
2025
2026
2027
2028
2029
2030
2041
2042
2043
$ 22,000
$ 22,000
$ 22,000
Effective
Interest
$ 18,403
$ 18,043
$ 17,647
$ 17,212
1. Lease liability
2. Right-of-use asset
3. Lease term
$ 16,733
$ 16,207
$ 5,471
$ 3,818
$ 2,000
Decrease in
Balance
$ 22,000
$ 3,597
$ 3,957
$ 4,353
$ 4,788
$ 5,267
$ 5,793
4. Effective annual interest rate
5. Total of lease payments
6. Total effective interest expense
$ 16,529
$ 18,182
$ 20,000
Outstanding
Balance
$ 206,028
$ 184,028
$ 180,431
$ 176,474
$ 172, 121
$ 167,333
$ 162,067
$ 156,273
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?
$ 38,181
$ 19,999
4. What is the effective annual interest rate?
Note: Round your percentage answer 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?
years
%
Transcribed Image Text:On January 1, 2024, 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: January 1 Payments $ 22,000 $ 22,000 $ 22,000 $ 22,000 $ 22,000 $ 22,000 $ 22,000 2024 2025 2026 2027 2028 2029 2030 2041 2042 2043 $ 22,000 $ 22,000 $ 22,000 Effective Interest $ 18,403 $ 18,043 $ 17,647 $ 17,212 1. Lease liability 2. Right-of-use asset 3. Lease term $ 16,733 $ 16,207 $ 5,471 $ 3,818 $ 2,000 Decrease in Balance $ 22,000 $ 3,597 $ 3,957 $ 4,353 $ 4,788 $ 5,267 $ 5,793 4. Effective annual interest rate 5. Total of lease payments 6. Total effective interest expense $ 16,529 $ 18,182 $ 20,000 Outstanding Balance $ 206,028 $ 184,028 $ 180,431 $ 176,474 $ 172, 121 $ 167,333 $ 162,067 $ 156,273 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? $ 38,181 $ 19,999 4. What is the effective annual interest rate? Note: Round your percentage answer 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? years %
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