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 2024 2025 Payments $ 21,500 $ 21,500 2026 $ 21,500 2027 $ 21,500 2028 $ 21,500 2029 $ 21,500 2030 $ 21,500 2041 $ 21,500 2042 $ 21,500 2043 $ 21,500 Effective Interest $ 17,985 $ 17,633 $ 17,246 $ 16,821 $ 16,353 $ 15,838 $5,347 $ 3,731 $ 1,955 Decrease in Outstanding Balance Balance 1. Lease liability 2. Right-of-use asset 3. Lease term 4. Effective annual interest rate 5. Total of lease payments 6. Total effective interest expense $ 21,500 $ 3,515 $ 3,867 $ 4,254 $4,679 $ 5,147 $ 5,662 $ 16,153 $ 17,769 $ 19,545 $ 201,346 $ 179,846 $ 176,331 $ 172,464 $ 168,210 $ 163,531 $ 158,384 $152,723 $ 37,315 $ 19,547 $0 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? 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 %
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 2024 2025 Payments $ 21,500 $ 21,500 2026 $ 21,500 2027 $ 21,500 2028 $ 21,500 2029 $ 21,500 2030 $ 21,500 2041 $ 21,500 2042 $ 21,500 2043 $ 21,500 Effective Interest $ 17,985 $ 17,633 $ 17,246 $ 16,821 $ 16,353 $ 15,838 $5,347 $ 3,731 $ 1,955 Decrease in Outstanding Balance Balance 1. Lease liability 2. Right-of-use asset 3. Lease term 4. Effective annual interest rate 5. Total of lease payments 6. Total effective interest expense $ 21,500 $ 3,515 $ 3,867 $ 4,254 $4,679 $ 5,147 $ 5,662 $ 16,153 $ 17,769 $ 19,545 $ 201,346 $ 179,846 $ 176,331 $ 172,464 $ 168,210 $ 163,531 $ 158,384 $152,723 $ 37,315 $ 19,547 $0 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? 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 %
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
(J)
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
2024 $ 21,500
2025 $ 21,500
2026 $ 21,500
2027 $ 21,500
2028 $ 21,500
2029 $ 21,500
2030 $ 21,500
2041 $ 21,500
2042 $ 21,500
2043
$ 21,500
Effective
Interest
$ 17,985
$ 17,633
$ 17,246
$ 16,821
$ 16,353
$ 15,838
$ 5,347
$ 3,731
$ 1,955
Decrease in Outstanding
Balance
Balance
$ 201,346
$ 179,846
$ 176,331
$ 172,464
$ 168,210
$ 163,531
$ 158,384
$152,723
$ 21,500
$ 3,515
$ 3,867
$ 4,254
$ 4,679
$5,147
$5,662
1. Lease liability
2. Right-of-use asset
3. Lease term
4. Effective annual interest rate
5. Total of lease payments
6. Total effective interest expense
$ 16,153
$ 17,769
$ 19,545
$ 37,315
$19,547
$0
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?
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
%
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 4 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education