Question

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

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
248,170
2021 26,500 26,500 221,670
2022 26,500 22,167 4,333 217,337
2023 26,500 21,734 4,766 212,571
2024 26,500 21,257 5,243 207,328
2025 26,500 20,733 5,767 201,561
2026 26,500 20,156 6,344 195,217
2027 26,500 19,522 6,978 188,238
— — — — —
— — — — —
— — — — —
2038 26,500 6,590 19,910 45,990
2039 26,500 4,599 21,901 24,089
2040 26,500 2,409 24,091 0
Required:
1. What is Majestic’s lease liability after the first lease 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?
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