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 243,635
2021 24,000 24,000 219,635
2022 24,000 19,767 4,233 215,402
2023 24,000 19,386 4,614 210,788
2024 24,000 18,971 5,029 205,759
2025 24,000 18,518 5,482 200,277
2026 24,000 18,025 5,975 194,302
— — — — —
— — — — —
— — — — —
2038 24,000 7,194 16,806 63,129
2039 24,000 5,682 18,318 44,811
2040 24,000 4,033 19,967 24,844
2041 27,080 2,236 24,844 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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Homework Answers

Answer #1

Part 1

2021 to 2040

20 Years

Part 2

$ 27,080

Part 3

$19,767/$219,635 =(8.999%)

9.00%

Part 4

($24,000*20)+$ 27,080

$ 507,080

Part 5

($24,000*20)

$ 480,000

Part 6

From Schedule given

$ 219,635

Part 7

$ 507,080-$243,635

$ 263,445

Part 8

($24,000*)*PV n=20,i=9%

$24,000*9.95011

$ 238,803

I HOPE IT USEFUL TO YOU IF YOU HAVE ANY DOUBT PLZ COMMENT GIVE ME UP-THUMB. THANKS..

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