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
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
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter20: Accounting For Leases
Section: Chapter Questions
Problem 6P: Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a...
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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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