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 Effective Interest Decrease in Balance Outstanding Balance $ 314,048 2024 $ 24,000 $ 24,000 $ 290,048 2025 $ 24,000 $ 14,502 $ 9,498 $ 280,550 2026 $ 24,000 $ 14,028 $ 9,972 $ 270,578 2027 $ 24,000 $ 13,529 $ 10,471 $ 260,107 2028 $ 24,000 $ 13,005 $ 10,995 $ 249,112 2029 $ 24,000 $ 12,456 $ 11,544 $ 237,568 2030 $ 24,000 $ 11,878 $ 12,122 $ 225,446 — — — — — — — — — — — — — — — 2041 $ 24,000 $ 11,272 $ 12,728 $ 44,627 2042 $ 24,000 $ 2,231 $ 21,769 $ 22,858 2043 $ 24,000 $ 1,143 $ 22,857 $ 0 Required: What is Majestic’s lease liability at the beginning of the lease (after the first payment)? What amount would Majestic record as a right-of-use asset? What is the lease term in years? What is the effective annual interest rate? Note: Round your percentage answer to 1 decimal place. What is the total amount of lease payments? What is the total effective interest expense recorded over the term of the lease?
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 Effective Interest Decrease in Balance Outstanding Balance $ 314,048 2024 $ 24,000 $ 24,000 $ 290,048 2025 $ 24,000 $ 14,502 $ 9,498 $ 280,550 2026 $ 24,000 $ 14,028 $ 9,972 $ 270,578 2027 $ 24,000 $ 13,529 $ 10,471 $ 260,107 2028 $ 24,000 $ 13,005 $ 10,995 $ 249,112 2029 $ 24,000 $ 12,456 $ 11,544 $ 237,568 2030 $ 24,000 $ 11,878 $ 12,122 $ 225,446 — — — — — — — — — — — — — — — 2041 $ 24,000 $ 11,272 $ 12,728 $ 44,627 2042 $ 24,000 $ 2,231 $ 21,769 $ 22,858 2043 $ 24,000 $ 1,143 $ 22,857 $ 0 Required: What is Majestic’s lease liability at the beginning of the lease (after the first payment)? What amount would Majestic record as a right-of-use asset? What is the lease term in years? What is the effective annual interest rate? Note: Round your percentage answer to 1 decimal place. What is the total amount of lease payments? What is the total effective interest expense recorded over the term of the lease?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 | Effective Interest | Decrease in Balance | Outstanding Balance |
|---|---|---|---|---|
| $ 314,048 | ||||
| 2024 | $ 24,000 | $ 24,000 | $ 290,048 | |
| 2025 | $ 24,000 | $ 14,502 | $ 9,498 | $ 280,550 |
| 2026 | $ 24,000 | $ 14,028 | $ 9,972 | $ 270,578 |
| 2027 | $ 24,000 | $ 13,529 | $ 10,471 | $ 260,107 |
| 2028 | $ 24,000 | $ 13,005 | $ 10,995 | $ 249,112 |
| 2029 | $ 24,000 | $ 12,456 | $ 11,544 | $ 237,568 |
| 2030 | $ 24,000 | $ 11,878 | $ 12,122 | $ 225,446 |
| — | — | — | — | — |
| — | — | — | — | — |
| — | — | — | — | — |
| 2041 | $ 24,000 | $ 11,272 | $ 12,728 | $ 44,627 |
| 2042 | $ 24,000 | $ 2,231 | $ 21,769 | $ 22,858 |
| 2043 | $ 24,000 | $ 1,143 | $ 22,857 | $ 0 |
Required:
- What is Majestic’s lease liability at the beginning of the lease (after the first payment)?
- What amount would Majestic record as a right-of-use asset?
- What is the lease term in years?
- What is the effective annual interest rate?
Note: Round your percentage answer to 1 decimal place.
- What is the total amount of lease payments?
-
What is the total effective interest expense recorded over the term of the lease?
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