Business, 21.02.2020 16:27 auviannadority13

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:

Jan. 1 Payments Effective Interest Decrease in Balance Outstanding Balance
268,653
2021 27,000 27,000 241,653
2022 27,000 21,749 5,251 236,402
2023 27,000 21,276 5,724 230,678
2024 27,000 20,761 6,239 224,439
2025 27,000 20,230 6,800 217,639
2026 27,000 13,691 13,309 204,330
2027 27,000 12,493 14,507 189,823
— — — — —
— — — — —
— — — — —
2038 27,000 6,151 20,849 47,496
2039 27,000 4,275 22,725 24,771
2040 27,000 2,229 24,771 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? (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?

Answers: 2

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On January 1, 2021, Majestic Mantles leased a lathe from Equipment Leasing under a finance lease. Le...