On January 1, 2024, 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:

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?
3. What is the effective annual interest rate?
4. What is the total amount of lease payments for United?
5. What is the total amount of lease payments for NIC?
6. What is United’s net investment at the beginning of the lease (after the first payment)?
7. What is United’s total effective interest revenue recorded over the term of the lease?
8. What amount would NIC record as a right-of-use asset at the beginning of the lease?

Transcribed Image Text:

Jan. 1 2024 2025 2026 2027 2028 2029 1 2041 2042 2043 2044 Payments 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 35,000 Effective Interest 17,250 16,975 16,673 16,340 15,974 7,364 6,101 4,711 3,182 Decrease in Balance 20,000 2,750 3,025 3,327 3,660 4,026 12,636 13,899 15,289 31,818 Outstanding Balance 192,501 172,501 169,751 166,726 163,399 159,739 155,713 61,006 47,107 31,818 0