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: Effective Interest Decrease in Balance Outstanding Balance January 1 Payments $ 307,504 2024 $ 29,000 $ 29,000 $ 278,504 2025 $ 29,000 $ 22,280 $ 6,720 $ 271,784 2026 $ 29,000 $ 21,743 $ 7,257 $ 264,527 2027 $ 29,000 $ 21,162 $ 7,838 $ 256,689 2028 $ 29,000 $ 20,535 $ 8,465 $ 248,224 2029 $ 29,000 $ 19,858 $ 9,142 $ 239,082 2030 $ 29,000 $ 19,127 $ 9,873 $ 229,209 2041 2042 $ 29,000 $ 5,979 $ 23,021 $ 51,713 $ 29,000 $ 4,137 $ 24,863 2043 $ 29,000 $ 2,148 $ 26,852 $ 26,850 $ 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? 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 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: Effective Interest Decrease in Balance Outstanding Balance January 1 Payments $ 307,504 2024 $ 29,000 $ 29,000 $ 278,504 2025 $ 29,000 $ 22,280 $ 6,720 $ 271,784 2026 $ 29,000 $ 21,743 $ 7,257 $ 264,527 2027 $ 29,000 $ 21,162 $ 7,838 $ 256,689 2028 $ 29,000 $ 20,535 $ 8,465 $ 248,224 2029 $ 29,000 $ 19,858 $ 9,142 $ 239,082 2030 $ 29,000 $ 19,127 $ 9,873 $ 229,209 2041 2042 $ 29,000 $ 5,979 $ 23,021 $ 51,713 $ 29,000 $ 4,137 $ 24,863 2043 $ 29,000 $ 2,148 $ 26,852 $ 26,850 $ 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? 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 years %
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
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:
Effective
Interest
Decrease in
Balance
Outstanding
Balance
January 1 Payments
$ 307,504
2024
$ 29,000
$ 29,000
$ 278,504
2025
$ 29,000
$ 22,280
$ 6,720
$ 271,784
2026
$ 29,000
$ 21,743
$ 7,257
$ 264,527
2027
$ 29,000
$ 21,162
$ 7,838
$ 256,689
2028
$ 29,000
$ 20,535
$ 8,465
$ 248,224
2029
$ 29,000
$ 19,858
$ 9,142
$ 239,082
2030
$ 29,000
$ 19,127
$ 9,873
$ 229,209
2041
2042
$ 29,000
$ 5,979
$ 23,021
$ 51,713
$ 29,000
$ 4,137
$ 24,863
2043
$ 29,000
$ 2,148
$ 26,852
$ 26,850
$ 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?
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
years
%
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