On January 1, 2016, National Insulation Corporation (NIC) leased office space un

Question

On January 1, 2016, National Insulation Corporation (NIC) leased office space under a capital lease. Lease payments are made annually. Title does not transfer to the lessee and there is no bargain purchase option. Portions of the lessee's lease amortization schedule appear below:

1- What is NIC's lease liability at the inception of the lease (after the first payment)?

Lease Liability =__________

2- What amount would NIC record as a leased asset?

Leased Asset=___________

3- What is the lease term in years?

Lease term=___________years

4-What is the asset's residual value expected at the end of the lease term?

Asset's reidual value=__________

5- How much residual value is guaranteed by the lessee?

Residual Value=___________

6-What is the effective annual interest rate?

Effective annual interest rate=___________% (Round your anwser to 1 decimal place)

7- What is the total amount of minimum lease payments?

Total amount of minimum lease payments=_________

8-What is the total effective interest expense record over the term of the lease?

Total effective interest expense=__________

Jan. 1 Payments Effective Interest Decrease in Balance Outstanding Balance 2016 2016 11,000 2017 11,000 2018 11,000 2019 11,000 2020 11,000 2021 11,000 7,998 7,812 7,614 7,404 7,181 11,000 3,002 3,188 3,386 3,596 3,819 140,000 129,000 125,998 122,810 119,424 115,828 112,009 2033 11,000 2034 11,000 2035 11,000 2036 27,164 3.110 2,653 2,135 1,586 7,860 8,347 8,865 25,578 42,790 34,443 25,578 3

Explanation / Answer

1- LEASE LIABILITY = 220000

2- LEASE ASSETS   = 140000

3 - LEASE TERM IN YEARS = 20 YEARS

4- ASSET RESIDUAL VALUE = 27164

5- RESIDUAL VALUE = 0

6- EFFECTIVE INTEREST RATE = 6.2%

7- AMOUNT OF LEASE PAYMENT = 140000

8-TOTAL EFFECTIVE INTEREST EXPENSE = 220000-140000 =80000

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