On December 31, 20X1, Thomas Henley, financial vice president of Kingston Corporation, signed a noncancelable three-year lease for an excavator. The lease calls for annual payments of $41,635 per year due at the end of each of the next three years. The leased equipment’s expected economic life is six years. No cash changed hands because the first payment wasn’t due until December 31, 20X2. Assume that the appropriate rate for discounting the lease payments is 12%. Kingston normally depreciates assets using the straight-line basis. Thomas has some concerns about how the lease will affect his financial statements.

Required:

1. Prepare an amortization schedule for the lease.

2. Before the effects of the lease, Kingston Corporation had $2,000,000 of total assets and $1,000,000 in total debt. How will the new lease change its debt-to-assets ratio at December 31, 20X1?

3. Before the effects of the lease, Kingston had current assets of $500,000 and current liabilities of $294,118. How will the new lease affect the current ratio at December 31, 20X1? 

4. Henley estimates that 20X2 pre-tax income before the effects of the new lease will be approximately $267,000. What is the percentage change in pre-tax income from the new lease?

5. How would the answer to requirement 4 change if Kingston were using IFRS 16?