On January 1, 2021, 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: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Or Use Intermediate Accounting table if not provided.

Jan. 1	Payments		Effective Interest		Decrease in Balance		Outstanding Balance
2021							243,635
2021	24,000				24,000		219,635
2022	24,000		19,767		4,233		215,402
2023	24,000		19,386		4,614		210,788
2024	24,000		18,971		5,029		205,759
2025	24,000		18,518		5,482		200,277
2026	24,000		18,025		5,975		194,302
—	—		—		—		—
—	—		—		—		—
—	—		—		—		—
2038	24,000		7,194		16,806		63,129
2039	24,000		5,682		18,318		44,811
2040	24,000		4,033		19,967		24,844
2041	27,080		2,236		24,844		0

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? (Round your answers to nearest whole dollar.)

3. What is the effective annual interest rate? (Round your percentage answer to 1 decimal place.)

4. What is the total amount of lease payments for United? (Round your answers to nearest whole dollar.)

5. What is the total amount of lease payments for NIC? (Round your answers to nearest whole dollar.)

6. What is United’s net investment at the beginning of the lease (after the first payment)? (Round your answers to nearest whole dollar.)

7. What is United’s total effective interest revenue recorded over the term of the lease? (Round your answers to nearest whole dollar.)

8. What amount would NIC record as a right-of-use asset at the beginning of the lease? (Round your answers to nearest whole dollar.)

Answer rating: 100% (QA)

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