Question
On January 1, 2021, National Insulation Corporation (NIC) leased equipment from United Leasing under a finance...
On January 1, 2021, National Insulation Corporation (NIC) leased
equipment from United 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 NIC.
Portions of the United Leasing’s lease amortization schedule appear
below: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and
PVAD of $1) (Use appropriate factor(s) from the tables
provided.)
| Jan. 1 | Payments | Effective Interest | Decrease in Balance | Outstanding Balance | ||||
| 2021 | 136,642 | |||||||
| 2021 | 15,000 | 15,000 | 121,642 | |||||
| 2022 | 15,000 | 13,381 | 1,619 | 120,023 | ||||
| 2023 | 15,000 | 13,203 | 1,797 | 118,226 | ||||
| 2024 | 15,000 | 13,005 | 1,995 | 116,231 | ||||
| 2025 | 15,000 | 12,785 | 2,215 | 114,016 | ||||
| 2026 | 15,000 | 12,542 | 2,458 | 111,558 | ||||
| — | — | — | — | — | ||||
| — | — | — | — | — | ||||
| — | — | — | — | — | ||||
| 2038 | 15,000 | 6,400 | 8,600 | 49,581 | ||||
| 2039 | 15,000 | 5,454 | 9,546 | 40,035 | ||||
| 2040 | 15,000 | 4,404 | 10,596 | 29,439 | ||||
| 2041 | 32,677 | 3,238 | 29,439 | 0 | ||||
Required:
1. What is the lease term in years?
2. What is the asset’s residual value expected at
the end of the lease term? (Round your answers to nearest
whole dollar.)
3. What is the effective annual interest rate?
(Round your percentage answer to 1 decimal
place.)
4. What is the total amount of lease payments for
United? (Round your answers to nearest whole
dollar.)
5. What is the total amount of lease payments for
NIC? (Round your answers to nearest whole
dollar.)
6. What is United’s net investment at the
beginning of the lease (after the first payment)? (Round
your answers to nearest whole dollar.)
7. What is United’s total effective interest
revenue recorded over the term of the lease? (Round your
answers to nearest whole dollar.)
8. What amount would NIC record as a right-of-use
asset at the beginning of the lease? (Round your answers to
nearest whole dollar.)
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