On January 1, 2011, 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:

Required:
1. What is NIC's lease liability at the inception of the lease (after the first payment)?
2. What amount would NIC record as a leased asset?
3. What is the lease term in years?
4. What is the asset's residual value expected at the end of the lease term?
5. How much of the residual value is guaranteed by the lessee?
6. What is the effective annual interest rate?
7. What is the total amount of minimum lease payments?
8. What is the total effective interest expense recorded over the term of thelease?

Transcribed Image Text:

Jan. 1Payments Effective InterestDecrease in BalanceOutstanding Balane 2011 2011 20,000 2012 20,000 2013 20,000 2014 20,000 2015 20,000 17,25 16,975 16,673 16,340 20,000 2,75 3,025 3,32 3,660 1,92,501 1,72,501 1,69,751 1,66,726 1.63,399 1,59,739 2016 20,000 2028 20,000 2029 20,000 2030 20,000 2031 35,000 15,974 7.3 6,101 4,711 3,18 4,02 12,63 13,89 15,28 31,81 1,55,713 61,006 47,107 31,818